Assets that have been put in a fiduciary relationship between a trustor and trustee for a specific beneficiary are referred to as trust property. Any kind of asset, including money, stocks, real estate, and life insurance, can be considered trust property. The terms “trust assets” and “trust corpus” are also used to describe trust property. Trust property is frequently included into an estate planning approach that lowers tax liabilities and makes it easier to transfer assets upon death. Some trusts can also shield assets against a lawsuit or bankruptcy.
According to the instructions of the trustor and in the beneficiary’s best interests, the trustee must manage the assets of the trust. An individual or a financial organization like a bank can serve as a trustee. A trustee is someone who manages assets for the benefit of another person, such as a son or daughter. A trustee is also frequently referred to as a “settlor” or “grantor.” Regardless of the position a trustee holds, he or she is subject to the laws and regulations that regulate the operation of the particular kind of trust that was created. When property is given to a trust, the trust really acquires ownership of the assets. In an irrevocable trust, the prior owner no longer has any control over or claim to the assets.
WHO MAY ESTABLISH A TRUST?
Any individual who is
(i) Over the age of 18,
(ii) Of sound mind,
(iii) Not barred from entering into a contract by any law, or
(iv) Acting on behalf of a minor, and
(v) Is competent to contract can create a trust.
BENEFICIARIES AND TRUSTEES
India does not regard a trust as a distinct legal entity. A trust is defined as a legal duty that is associated with the ownership of property and results from the settlor’s confidence in the trustee to act in the interests of the beneficiaries, or both the beneficiaries and the settlor. Such trust property belongs to the trustee legally, but the beneficiaries have a benefit interest in it.
INDIAN TRUST ACT, 1882 (“Trust Act”).
According to Section 3 of the Trust Act, a “Trust” is a duty attached to property ownership that results from a confidence proclaimed and acknowledged by the owner on behalf of another party or on behalf of both the owner and another party. As a result, a trust is a declaration made by the property owner that the property will be held in the future by him or another person (such as a trustee) for the benefit of someone (i.e. the beneficiary) and will be given to that person either right away or in due course.
TYPES OF TRUSTS
There are numerous sorts of trusts that people can create. However, they usually fall into one of two categories: revocable trusts or irrevocable trusts.
The trustor retains legal ownership and management of the trust’s assets in a revocable structure. Because of this, the trustor would be liable for paying taxes on the income that these assets produce, and the trust itself may become subject to inheritance taxes if its value exceeded the limit at which it was tax-exempt at the time of the grantor’s passing.
A trustee receives legal ownership of the trust’s assets when the trustor creates an irrevocable trust. However, this has the effect of removing those assets from a person’s estate, so reducing the taxable portion of that estate. Additionally, the trustor renounces some of his or her rights to amend the trust document. For instance, after the beneficiaries of an irrevocable trust have been chosen, the trustor often cannot amend them. With a revocable trust, this is not the case.
PAYABLE ON DEATH TRUST
A trust can be established either while the grantor is still alive or after their passing. Payable on Death (POD) trusts, which distribute assets to beneficiaries after the death of the trustor, are affected by this condition. This kind of trust and ones like it are generally referred to as testamentary trusts because property is really transferred after the trustor dies. Following the trustor’s passing, assets in these trusts go immediately to the intended beneficiaries, avoiding the frequently time-consuming and expensive probate process. The legal procedure of certifying and allocating the assets specified in a will is known as probate. A person’s will may also contain a description of these trusts.
Living trusts allow the transfer of assets while the trustor is still alive. For instance, many people form trust accounts with banks for the benefit of their kids or to assist pay for their kids’ education costs. Although the children don’t have full access to the funds or the ability to use profits from the fund anyway they like, a trustee carefully administers the assets stored in the account to accomplish this purpose. A unified gift to minors act (UGMA) account is an illustration of this kind of structure. Beneficiaries, such as children, could occasionally not have access to the trust’s assets or the income they produce until they reach a specific age.
A private trust is established for the benefit of particular individuals, meaning those who can be positively identified within a given time frame or who are defined and ascertained individuals. A private trust is not perpetual and effectively ends when its intended purpose is fulfilled, an event occurs, or, at the very least, eighteen years have passed since the passing of the last transferee who was alive when the trust was established.
A public trust is established for the benefit of an unreliable and erratic group of people who are impossible to predict at any given time, such as the general public or a subset of the public who practice a certain profession, religion, or faith. A public trust typically lasts forever or for an undetermined amount of time. There is no Central Act that regulates the establishment and management of public trusts. However, a number of states, like Bihar, Maharashtra, Madhya Pradesh, Orissa, etc., have passed their own laws defining the terms and guidelines for the management of public trusts. Although there may be some differences, these Acts are more or less identical in nature.
- Take pleasure in the income from the trust property’s rents and earnings.
- Anticipate that the trustee will provide one or more beneficiaries the trust’s assets.
- Examine and make copies of the trust instrument, any documents pertaining to the trust property, and the trust property accounts.
- The beneficiary may file a lawsuit to force the trustee to carry out the trust if, for whatever reason, doing so becomes impractical.
- To count on the trustee to appropriately safeguard and manage the trust’s assets.
- To compel the trustee to properly carry out his duties.
- To transfer the trust’s benefits to any other individual after the beneficiary attains majority.
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