How to Form a Charitable Trust? A Step by Step Guide

Trust means the responsibility which is placed on someone who has everyone’s confidence or authority. It is the confidence that is placed in an individual by providing him legal access to the property. He/ she has to hold this property in such a way that it is beneficial for others. Hence, the responsibility of the trustee consists of the following: the protection of the property of the trust, the trust property’s preservation and the utilisation of the income from trust as per the intentions of the creator of the trust. In this blog, we will discuss in detail the process to form a charitable trust in India.

A Charitable Trust in India

Under The Indian Trusts Act, 1882, trust has been defined as a responsibility annexed to the property’s ownership. Trust arises from the confidence that is placed in someone and is accepted by the owner or has been accepted and declared by him either for others benefit or for his and others benefit.

1.    Author of the Trust: The individual who declares or places his confidence.

2.    Trustee: The individual who accepts the declared confidence.

3.    Beneficiary: The individual for whose benefit the confidence was accepted.

4.    Trust Property: The trust’s subject matter also known as trust money.

5.    Trust Deed: If there are any instruments that are used for the declaration of trust; also known as an instrument of trust.

Components of Charitable Trust Formation

The various elements that are required in order to form a charitable trust are listed below:

1.  An author of trust or a settlor of trust
2. The Trustee
3. The Beneficiary
4. The Trust Property or Trust Money or Subject matter of the Trust
5. The Objects of Trust

According to Section 6 of the Indian Trusts Act, 1882, when the author of the trust has indicated the intention of forming a charitable trust either by acts or words, then a trust is created. The indications of the following are needed:

1. The intention to create a trust
2. The purpose of the trust
3. The beneficiary
4. The trust property
5. The transference of the Trust property to the trustee.

Trust Deed
Words or acts can be used to form trust and hence there is no compulsion to have a trust deed. But, a trust deed can be needed and desired in certain cases. In case of a private charitable trust relating to an immovable property, a written trust deed is essential and can be executed afterward and should also be registered except for the case when the trust has been created by a will. While for a public charitable trust relating to an immovable property, it is desirable to have a written trust deed, however, it is not mandatory. For the charitable trusts related to movable property either public or private, a simple delivery of possession with an indication that the property has been held under a charitable trust is sufficient enough and there is no need of any documents or registration.

Process to form a Charitable Trust
The process to form a public charitable trust is different from the process to form a private charitable trust. This is because they are monitored by different laws. The formation of a public charitable trust is monitored by the general law while the formation of a private charitable trust is monitored by the Indian Trusts Act. The formation of a charitable or religious organisation can be done either as a trust or as a society or as a Section 8 Company.

Process to form a Private Charitable Trust

The main requirement for the creation of a private charitable trust is the intention of the author to create a trust which is reasonably certain either by words or acts. Therefore, it is possible to declare a trust either by words or acts. In the case of declaring a trust by words, the language should be clear enough to show the intention of creation of trust. The basic requirements for the formation of a charitable trust are listed below:

1. The author must wish to create a trust which is bound by the law on him or on the individual who has been given the property.
2. The author wishes to bind definite property by the trust.
3. The author wishes to ensure benefits to specific individuals or people in a specific way.
    

Conclusion
In this blog, we came across charitable trusts and the various elements which are important for the formation of a charitable trust. We also discussed a trust deed and the process of formation of a private charitable trust and the various reasons for which a charitable trust can be formed.