Kinds of Trusts:
Trusts are either private or public.
Private Trust:
A trust is called a Private Trust when it is constituted for the benefit of one or more individuals who are, or within a given time may be, definitely ascertained. Private Trusts are governed by the Indian Trusts Act 1882. A Private Trust may be created inter vivos or by will.
Pre-requisites for creation of a Private Trust:
Following are essential conditions to bring into being a valid Private Trust :
- The person who creates a trust (settlor) should make an unequivocal declaration binding on him.
- The objects of the trust must be defined and specified.
- The beneficiaries are specified.
- He must transfer an identifiable property under irrevocable arrangement and totally divest himself of the ownership and the beneficial enjoyment of the income from the property.
Unless all the above requisites are fulfilled, a trust cannot be said to have come into existence.
Public Trust
A trust is called as Public Trust when it is constituted wholly or mainly for the benefit of Public at large, in other words beneficiaries in the public trust constitute a body which is incapable of ascertainment. The Public trusts are essentially charitable or religious trusts and are governed by the general Law. The provisions of Indian Trusts Act do not apply on Public Trusts. Like the private trusts, public trusts may be created inter vivos or by will. The Indian Trusts Act does not apply to public trusts which can be created by general law.
Pre-requisites for creation of a Public Trust:
There are three certainties required to create a charitable trust are as follows:
- a declaration of trust which is binding on settlor,
- setting apart definite property and the settlor depriving himself of the ownership thereof, and
- a statement of the objects for which the property is thereafter to be held, i.e. the beneficiaries.
It is essential that the transferor of the property viz the settlor or the author of the trust must be competent to contract. Similarly, the trustees should also be persons who are competent to contract. It is also very essential that the trustees should signify their assent for acting as trustees to make the trust a valid one. When once a valid trust is created and the property is transferred to the trust, it cannot be revoked, If the trust deed contains any provision for revocation of the trust, provisions of sections 60 to 63 of the Income-tax Act will come into play and the income of the trust will be taxed in the hands of the settlor as his personal income.
