A trust is created for a number of purposes. To look after the well-being of a minor, for charitable purposes, to provide medical aid to the author, etc., are some sole purposes for creating a trust.
The provisions of the Indian Trust Act, 1882 are applicable to only the private trusts in India. Public trusts are mostly governed by state legislation such as the Maharashtra Public Trust Act. The Indian Trust Act does not govern Waqf, religious or charitable endowments. Further, it is applicable to the whole of India except in the state of Jammu and Kashmir.
WHAT IS A TRUST?
A trust can be defined as a fiduciary relationship where a party transfers its properties in whole or some part of it to a person he rests his confidence in for the benefit of the third party or for himself. Here the property does not necessarily mean real estate or just land; it can be shares, cash, or any valuable assets.
According to Section 3 of The IndianTrust Act, 1882, a “trust” is defined as an obligation annexed to the ownership of the property, 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.
PARTIES TO A TRUST:
- Author or trustor– the person who initially transfers the property for the benefit of the third party.
- Trustee– the person on whom the trust is vested and receives and property from the author.
- Beneficiary– the third party for whom the trust is created and will benefit in the near future.
The instrument which is used to create the entire trust is known as “trust deed”. Trust can be created by an individual, entity, AOP, HUF, etc. for the benefit of the third party. In case a minor wants to create a trust deed, permission needs to be obtained from the Principal Civil Court of original jurisdiction.
RIGHTS OF TRUST BENEFICIARY:
The Indian Trust Act, 1882 confers certain rights on the part of the beneficiary to obtain the interests-
Right to rents and profits [S.55]- The trust beneficiary has the right to receive all the rents and profits incurred by the trust property. This provision makes an obligation on the part of the author or the trustee to make sure that the interest is received by the beneficiary.
Right to Specific Execution [S.56]- The beneficiary has the right to receive all the information regarding the intention of the author and to what extent their interest lies in the trust specifically executed for them. Therefore, it makes mandatory on the part of the trustee to provide the beneficiary with all the information.
Right to Transfer of Possession [S.56]- The provision also makes an obligation on the part of the trustees to transfer the trust property to the beneficiary(s) or to such person as directed by the beneficiary(s).
In case a trust is created for the benefit of a married woman so that she does not deny the right of her beneficial interest, during her marriage the right of the beneficiary to have the property transferred will not be available to her.
Right to inspect and take copies of instrument of trust, accounts, etc.[S.57]- The beneficiary is entitled to inquire about any documents related to the trust property be it the trust deed, accounting of trust property, or vouchers if any, and take copies of any such document. It makes an obligation on the part of the trustee to maintain an accounting record and submit it by the end of each year. Beneficiaries are also entitled to waive off any records.
Right to transfer beneficial interest [S.58]- The beneficiary who is competent to the contract has the right to transfer the beneficial interest but should be in accordance with the law prevailing at that time. However, the transfer must be under the circumstances and to an extent to which the right can be transferred.
In case the trust is bequeathed for the benefit of a married woman so that she does not deny the beneficial interest she is not conferred with the right to transfer such trust property during the period of her married life.
Right to sue for Execution of Trust [S.59]- This provision deals with the situation where trustees are not appointed or have died, disclaimed or discharged, or for any other reason where the execution of the trust by the trustees becomes impracticable, the beneficiary can file for a suit for the execution of the trust. In such cases, the court is bound to carry out the execution of the trust under its own supervision until a new trustee is appointed.
Right to proper trustee [S.60]- This provision confers the beneficiary the right to demand protection and administration of the trust property by a proper person or a proper number of any such person. The provision also lists down persons who cannot be defined as a proper person with the ambit of this section:
- A person having domicile of abroad;
- An alien enemy;
- A person having interest that is inconsistent with that of the beneficiary;
- A person in insolvent circumstances and unless otherwise provided by the personal laws of the beneficiary,
- A married woman,
- A minor child.
In cases where the administration of trust requires the receipt and custody of money, then the number of trustees for the job should be at least two.
Right to compel to any act of duty [S.61]- The provision confers a right to the beneficiary that he can compel the trustee to perform a particular act of his duty or as such. He can also restrict the trustee from performing any contemplated or probable breach of trust.
Wrongful purchase by trustee [S.62]- This provision provides the beneficiary with the right to restrain the trustee from committing any breach of trust. If the beneficiary has wrongfully bought the trust property with the intention to use it for himself, the beneficiary has the right to recover it back from him and can also compel him to hold the trust property for the beneficiary.
If the property has been sold to a third party knowing that it was trust property, the beneficiary has the right to recover it from the third party. However, in such a case, the beneficiary needs to repay the purchase amount along with the interest, and any such expenses which have incurred while preserving the property will be paid by the trustee.
The provision puts certain obligations on the part of the trustee or the purchaser. He must:
- Account for the net profits of the property,
- Pay the occupation rent if he was in actual possession of the property, and
- Allow the beneficiary to deduct a part of the purchase money if the property has been deteriorated by certain acts or omissions of the trustee or purchaser.
LIABILITIES OF TRUST BENEFICIARY:
- Duty to compensate the Trustee- In case the beneficiary causes any damage to the trustee or the trust property, the beneficiary is legally bound to compensate or reimburse for the damages caused by him.
- Liability in breach of trust- If in case the beneficiary breaches the trust agreement in any way, he will be held liable for the damage or losses incurred by the breach of trust.
- Liability in harming others’ Interests- The beneficiary will be held liable if in any way he/his behavior causes any harm to another party’s interest.
- Liability not to take advantage- If the beneficiary needs to take any kind of advantage from the trust property, it is compulsory on the part of the beneficiary to take consent from all the other beneficiaries related to the trust. It will be considered as a breach of trust if not done so.
- Liability to receive interest(s)- The beneficiary is liable to receive only his part of the interest from the trust and not more than that.
- Liability to be aware of the breach of trust- It is the responsibility of the beneficiary to proceed with a suit against any party in case a breach of trust is found. It is his liability to become aware of all kinds of breach of trust either by the author or by the trustee.
- Liability to deceive the trustee- The court may proceed with a suit against the beneficiary if in case it is found that the beneficiary has deceived the trustee or persuaded him to perform a breach of trust.
- Liability to take reasonable steps- It is the responsibility of the beneficiary to comply with the reasonable steps as mentioned in the instrument of trust within the limitations and boundaries set keeping in mind the rights and liabilities of other beneficiaries. If not done so, the person will be held liable.
Although a trust is created for the benefit of the beneficiary and possesses certain rights on the trust property, there are also certain liabilities and responsibilities imposed on him. The Indian Trust Act, 1882 ensures that the beneficiary not only enjoys the rights and benefits on the trust property but also complies with the provisions of the trust deed in order to avoid any damages which may be caused to other beneficiaries, hence balancing the scale.
Author: Deepa Rishi,
3rd Year, REVA UNIVERSITY, BANGALORE.