A QUESTION OF TRUST


It is difficult to define the word ‘Trust’ in the legal sense. The Indian Trusts Act 1882 defines Trust as an obligation connected to property ownership, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. Even this definition does not fully capture the essence of the term. However, it is easier to describe what a Trust is.

An operational Trust has at least four ingredients. One is the ‘Author of the Trust’ who creates the Trust. He reposes confidence or trust in one or more persons to execute the objects of the Trust. The persons in whom the confidence is reposed are the ‘Trustees.’ The person for whose benefit the Trust is created is the ‘Beneficiary.’ The initial money raised for the trust is its ‘Corpus.’ The Trust mayor may not have immovable properties. If you are dealing with a Trust property or planning to purchase property from a Trust, you have to first check out whether it is a Private or a Public Trust, or whether it is a Religious Trust. Depending on the type of Trust, the approach will vary.

One of the ways of finding out whether a Trust is a Private or a Public Trust is to see what its objects are, and who the beneficiaries are by checking out the Trust Deed. If the beneficiaries are identifiable, then most probably it is a Private Trust. If specific beneficiaries are not identifiable and the beneficiaries are the general public or sections of the public, then it is a Public Trust.

Bequests

This is very critical in dealing with the properties of a Trust. The next thing is to see as to how the property was acquired by the Trust. The Trust can acquire properties by bequests, that is, testamentary dispositions made by persons through a will. It can acquire properties by outright purchase or by other modes. Frequently, properties are also endowed or orally transferred to the Trust. Separate declarations are made confirming the transfer. Though there may not be any registered document, giving property to a Trust by a valid endowment or oral transfer is valid. This has to be ascertained from the documents.

A distinction has to be made on how the property is brought in, and on the constitution of the Trust. As per the Indian Trusts Act 1882, a Trust connected with an immovable property has to be constituted by a non-testamentary instrument in writing signed by the Author of the Trust or the Trustee and registered. The Will of the Author of the Trust or the Trustee can also constitute it. As far as movable properties are concerned, a Declaration of Trust has to be made and ownership of the property transferred to the Trust. A Trust cannot be constituted in a fraudulent manner or to defeat the rights of persons claiming interest in the property.

You also have to check whether there is a complete investment of right, title and interest of the Author of the Trust or the Donor in the property. The documents to be checked could include declarations, tax records, and other documents evidencing dealings of the Trust. As far as sale of Trust property is concerned, especially a Public Trust, it is the deed, which governs the same.

There should be a clear provision in the Sale Deed enabling the Trustees to sell property. If this provision is not clearly found in the Trust Deed, then court permission is required for the sale. This permission has to be obtained depending on whether the Trust is a Private or a Public Trust. Any direction contained in the

relevant Trust Deed for affecting the sale has to be strictly met. In the case of Public Trust or Charities, permission from the Income Tax Department may be required.

The Trust must be able to give you the title deeds and deliver vacant possession of the property, unless otherwise agreed. The persons signing on behalf of the Trust should be empowered under the Trust Deed or as per directions of court. The Sale Deed or Conveyance has to be stamped and registered as usual. Any litigation pending against the Trust should not affect the transfer of property.

The sale of the Trust property should have been made during the term of the Trust. A Public or a Charitable Trust is, however, irrevocable and is designed to have perpetual existence, unless terminated by an order of court. In certain Public and Charitable Trusts, the competent court can frame a scheme and the property has to be dealt with in accordance with the directions or provisions of the said scheme. If authorization is required from the Board of Trustees or any other formality has to be fulfilled, then the same has to be complied with.

Sale of properties by Trusts, which are basically educational institutions, or religious trusts is governed by different procedures. It is best to obtain competent professional advice on various aspects of the purchase, especially, the necessity of approaching the court for obtaining suitable orders or electing to purchase the property based on the terms and directions contained in the Trust Deed.

FOR MORE
Advocate Selvakumar
Senior Advocates
Property Law
Intellectual Properties
NRI Matters

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