This article is written by Debraj Mohanta pursuing B.A. LL.B, Second year student at South Calcutta Law College, Calcutta University, Kolkata during his internship at LeDroit India.
Introduction: A deed of trust is a legal document used in real estate deals to secure a loan. It involves three parties:
- Borrower/Trustor: The person who borrows money to buy the property.
- Lender/Beneficiary: The entity that provides the loan.
- Trustee: A neutral third party, often a title company, which holds the legal title to the property until the loan is fully paid.
In this arrangement, the borrower gives the legal title of the property to the trustee as security for the loan. The borrower keeps the right to use the property and build equity while making payments. If the borrower fails to repay the loan, the trustee can start foreclosure actions to take control of the property.
In India, a deed of trust is mainly governed by the Indian Trusts Act of 1882. This legal document sets up a trust and outlines the roles and responsibilities of the parties involved, which typically include:
Settlor: The person who creates the trust.
Trustee: The individual or entity that manages the trust.
Beneficiaries: The individuals who benefit from the trust.
Indian Trusts Act, 1882: This act provides the main legal structure for creating and managing trusts in India. It defines the roles of the settlor, trustee, and beneficiaries, along with their rights and obligations.
Types of Trusts: Trusts can be either private, benefiting specific individuals, or public, serving charitable purposes. Each type has different legal requirements and implications, particularly regarding taxes and regulations.
Legal Requirements for Deed of Trust:-
Drafting and Registration: A deed of trust must be well-drafted to include all necessary terms. It should be executed on stamp paper and registered with the relevant government authority to be legally valid. Registration makes the trust enforceable and protects the interests of all parties.
Compliance with Laws: The trust must follow applicable laws and regulations, including tax laws. Trusts have various tax responsibilities, and failing to comply can lead to legal issues and penalties.
Responsibilities of Trustees
Trustees have a legal duty to manage the trust in the best interests of the beneficiaries, which includes:
- Duty of Care: Trustees must manage trust assets carefully, make wise investment choices, and ensure the trust operates according to its goals.
- Accountability: Trustees must keep accurate records and regularly report to beneficiaries. They should avoid conflicts of interest and not act in ways that harm the beneficiaries’ interests.
Legal Implications of Breach of Trust: If a trustee does not fulfill their duties, they can be held responsible for breach of trust, leading to:
Legal Action: Beneficiaries can sue the trustee to recover losses from mismanagement or negligence.
Personal Liability: Trustees may be personally liable for losses due to their failure to fulfill their duties, depending on the situation and the trust deed’s terms. A trust deed can be changed, but this must follow legal procedures. Changes usually require the consent of both trustees and beneficiaries, and sometimes court approval. Winding up a trust involves legally distributing the trust’s assets to beneficiaries and settling any tax obligations. This process must comply with the trust deed and relevant laws to avoid legal disputes.
A deed of trust in India is a legal document that establishes the rules for a trust. It is governed by the Indian Trusts Act, 1882.
The major key parts of a deed of trust are:
Parties Involved
Settlor: The person creating the trust and transferring assets into it.
Trustee: The individual or entity managing the trust and its assets according to the deed’s terms. The trustee must act in the beneficiaries’ best interests.
Beneficiaries: The people or organizations who will benefit from the trust, as specified in the deed.
Purpose of the Trust
The deed must clearly state why the trust is being created, such as personal estate planning or charitable goals. This guides the trustee’s actions.
Trust Property: The deed describes the assets being put into the trust, including: Movable and immovable properties, cash, securities, etc. The initial amount or property transferred by the settlor to establish the trust.
Trustee’s Responsibilities: The deed outlines the trustee’s powers and duties, such as:
- Managing the trust assets, making investments, and using the assets according to the trust’s purpose.
- Acting in the beneficiaries’ best interests and avoiding conflicts of interest (fiduciary duty).
- Rules for Operating the Trust
- The deed serves as the trust’s constitution, detailing:
- How decisions will be made about managing the trust.
- The process for amending the deed, usually requiring consent from the trustee and beneficiaries.
The deed specifies:
- Any conditions that must be met before assets are distributed to beneficiaries.
- The timeline for distribution, whether immediate or contingent on events.
- Ending the Trust
- The deed outlines the conditions for terminating the trust and distributing remaining assets to beneficiaries.
Legal Requirements
The deed must comply with relevant laws, including: Being executed on stamp paper and registered with the government to be legally valid. Addressing any tax implications of the trust’s operations and distributions.
Conclusion
The legal implications of a deed of trust in India are significant, covering the creation, management, and potential dissolution of trusts. Understanding the legal framework and responsibilities is essential for all parties involved to ensure compliance and protect their interests. While establishing a trust can offer various benefits, it requires careful planning and adherence to legal standards to prevent complications.
Example of a deed of trust is as mentioned:
DEED OF TRUST
This DEED OF DECLARATION OF TRUST executed at on this day of by
hereinafter called as AUTHOR OF THE TRUST which expression shall
Wherever the context so permits mean and include its successors –in-office of
The ONE PART
AND.
WHEREAS the AUTHOR OF THE TRUST decided to create and establish a
Trust to make research in Alternative Medicine and Acupuncture for the welfare
Of the community at large without discrimination of caste. Creed etc. with objects
and constitution as hereinafter set forth;
WHEREAS the said objects in view, the AUTHOR OF TRUST have decided
To endow the said TRUST a nucleus of Rs___________________
(________________ only) in cash; and
WHEREAS it is necessary and desirable to declare and constitute the said Trust
and to record the objects and constitution of the said Trust.
NOW THIS DEED OF DECLARTION OF TRUST WITNESSETH AS
FOLLOWS;
1. TRUSTEES mean and include the Board of Trustees as described in these
presents, and these Trustees, as appointed, nominated or selected by the
remaining members of the Board of Trust whenever any vacancy arises.
2. CREATION OF THE TRUST:
In pursuance of the intention, the AUTHOR OF TRUST has settled the sum of
$_____ by cash unto and in favour of the Trustees herein to be held by them for
and on behalf of the Trust hereby created and known as “ ” the
Receipt of which sum of Rs._____________ which has already been handed
over to the Trustees mentioned hereunder, is hereby acknowledged by the
Trustees, who hereby accept the appointment as such Trustees of the said Trust,
Under the terms and conditions, set out hereunder for the fulfillment of the
Objects of the Trust more fully and particularly described and set out hereunder.
3. REGISTERED OFFICE OF THE TRUST:
The registered office of the Trust is situated at present at No.
4. TRUSTEES:
The AUTHOR OF THE TRUST has appointed the following persons to hold
The office of the
Trust as Trustees:
5.1. MOTTO OF THE TRUST:
The Motto of the Trust is
5.2. OBJECTS OF THE TRUST:
The objects of the Trust are. –
5.3. BENEFIT OF THE TRUST:
The Benefits of the Trust are open to all irrespective of Caste, religion, race, sex
Etc.
That the Trust will not carry on any activities with an intention of earning profit.
6. THE PROPERTIES OF THE TRUST
The properties of the Trust shall be. –
(a) the said sum of Rs. above referred to the receipt of which is hereby
acknowledged by the Trustees.
(b) any properties movable or immovable, that may be acquired by the Trust
either by purchase or otherwise.
(c) all additions and acceptations to the Trust fund.
(d) all voluntary donations both towards corpus or otherwise gifts, legacies or
grants in cash or in kind accepted by the trustees.
(e) all grants and contributions made to the Trust by the Government,
Government bodies, Trust or Institutions, Trade Union or Societies etc.; and
(f) all sums and assets which by and means become the property of the Trust.
7. QUALIFICATION OF THE TRUSTEES:
The qualification for the trustees shall be
a) One Trustee shall possess qualification in alternative medicine or
acupuncture.
b) One may be Specialist in yoga therapy.
c) Other trustees shall be social workers or professionals in the field of medicine
or accounts or law.
8. CESSATION OF TRUSTEESHIP:
A Trustee mentioned below shall cease to be the trustee of the Trust if:-
(a) he resigns.
(b) he becomes insolvent.
(c) He is removed by the majority of the members of the, if it is found that the
trustee(s) activities are detrimental to the activities or administration or funds of
the Trust
9.APPOINTMENT OF TRUSTEES:
Any vacancy in the Board of Trustees shall be filled up by the remaining
members of the Trust selecting a suitable person.
10. ADMINISTRATION OF THE TRUST;
The administration of the TRUST shall vest with the Board of Trustees, which
consist of.-
a) One Managing Trustee;
b) One Joint Managing Trustee;
c) One Deputy Managing Trustee and three trustees
11. POWER OF THE TRUSTEES;
The Board of Trustees shall have the control and management of the Trust and
exercise the following powers:
a) To determine from time to time to commence and to take up the object and
purposes for which the funds of the trust shall be used and allot and allocate to
each of the objects such portion of the funds as they deem fit;
b) To purchase and acquire any immovable property of any kind for this object
of the Trust or as a source of income for the Trust;
c) To sell, mortgage, or dispose of any immovable property/properties
belonging to the Trust;
d) To incur all expenditure necessary as in their own opinion useful for carrying
out the objects and administration of the trust;
e) To sell, lease, mortgage or dispose of any property, immovable
property/properties belonging to the Trust’
f) To open one or more bank accounts of the trust with any bank or banks as the Trustees may deem fit and deposit monies of the Trust in the Bank accounts.
g) To borrow for and on behalf of the Trust with or without security from banks, Governments, Universities or any other government Body/bodies both central and state;
h) to employ staff of all kinds necessary and useful for carrying out the objects
of the trust.
i) To incur such other items of expenditure as is necessary and incidental for
carrying out the objects of the Trust;
j) To institute, conduct, defend, compound, withdraw, compromise, adjust, refer
to arbitration or to do such things as are incidental and necessary, concerning
the affairs of the Trust and to sign and verify vakalats, pleadings, affidavits and
other powers’
k) To delegate all or any of the powers vested in the Trustees to any body’ to
frame rules, bylaws and other codes for the conduct of the affairs of the Trust
and its transactions and establishing any Committee;
l) To accept contributions in cash or in kind either by way of addition to the
trust funds generally or for any one or more of the specified objects of the Trust.
m) To establish as many adhoc committees for any purpose.
12. Meetings of the Trustees:
a) The Managing Trustee shall preside over all the meetings of the trustees and
in his absence the Joint Managing Trustee shall preside such meeting and in the
absence of both, the trustees attended such meeting may elect any one of them
to preside over the meeting;
b) The meetings of the Trustees may be convened by the Managing Trustee or
under his direction by any other Trustees
c) The quorum of the meeting of the Trustees shall be four personally present.
d) In the event of equality of votes, the person presiding such meeting shall
exercise casting vote (additional vote).
13. RESOLUTIONS:
a) The Trustees may exercise all the powers vested in them in clause 9 under
these presents by resolution passed at a simple majority of the trustees attended
such meetings of the Board of Trustees.
b) Any resolution in writing signed by all Trustees holding office for the time
being shall be valid and binding.
14. SUITS:
The Managing Trustee of the Trust is authorized to sue or to be sued on behalf
of the Trust.
15. Execution of Documents:
All Deeds, Documents etc. shall be executed by the Managing Trustee, Joint
Managing Trustee and Deputy Managing Trustee jointly representing the Trust.
16. ACCOUNTS AND AUDIT:
a) The Trustees shall maintain true and correct accounts of all Trust monies and of all the income and investments and all the outgoing expenses.
b) The year of account shall be the financial year commencing from 0st
MONTH and ending 0st MONTH.
c) The Trustees shall each year issue a report setting out the accounts showing
the income and expenditure of the Trust for the preceding year not later than six months from the end of the preceding year of accounts.
d) The accounts of the Trust shall be audited every year by a Chartered
Accountant who may be appointed for the purpose by the board of Trustees and the audited statement of accounts together with Auditors’ report shall be laid before the Board of Trustees for approval.
17. BANK ACCOUNT:
The Managing Trustee along with the Deputy Managing Trustee shall operate bank account(s) jointly.
18. POWER TO ALTER RULES AND REGULATIONS:
The Board of Trustees shall have full power and authority to make, alter and
rescind rules and regulations for the management and administration of the Trust.
Any amendment to the Trust Deed will be carried out only with the approval of the Commissioner of Income Tax.
19. APPLICATION OF INCOME AND TRUST FUND:
The Board of Trustees shall be empowered to invest the funds of the Trust in
movable or immovable properties, in such manner as they deem fit for the
purpose of the objects of the trust provided that such investments shall be in
accordance with the provision of Section 13(I) read with Section 11(5) of the
Income Tax Act, 1961 as well as of any other law for the time being in force as are applicable to charitable trusts.
20. REMUNERTION TO THE TRUSTEES:
The Trustees are not entitled for any remuneration. But they shall however be
entitled to receive out of pocket expenses incurred by them in the course of
discharging the functions of the Trust. Further the Income and funds of the
Trust will be solely utilized towards the objects and no portion of it will be
utilized for payment of Trustees by way profits, interest, dividend or otherwise.
21. INDEMNITY:
Every Trustee shall be indemnified out of the fund in respect of any loss arising
from or contingent upon any investment made out of the monies of the Trust
unless such loss shall have been occasioned by own negligence and also every
Trustee shall be indemnified out of the Trust against all proceedings, suits,
claims, costs, damages and expenses occasioned by any claim in connection
with the matters or affairs relating to the Trust created by these presents or in
the exercise of powers or discretion vested in them by virtue of these presents.
22. IRREVOCABILITY:
The Trust is irrevocable.
23. ACTIVITIES OF THE TRUST:
The activities of the Trust shall be only within India and its Union territories
and shall not be extended anywhere outside India.
24. DISSOLUTION:
On dissolution of the Trust, the net assets of the Trust shall be transferred to an association of persons or trust or society having similar objects of this Trust.
25. PROCEEDING OF THE TRUST:
Any defect in the constitution of the Trust shall not invalidate its proceedings
26. RESIDUARY:
For matters not provided for in these presents, the provisions of the Indian Trust Act and the Income Tax Act,1961 and rules made there under will apply
accordingly.
IN WITNESS WHEREOF THE AUTHOIR OF THE TRUST HAS SET HIS
HAND AND SIGNATURE ON THE DAY, MONTH AND YEAR FIRST
ABOVE WRITTEN IN THE PRESENCE OF
WITNESSES: –
AUTHOR OF THE TRUST
Drafted by:
