Holding of property by
a trustee involves various obligations and duties on the parties to a trust
deed and these are enumerated in the Indian Trust Act 1882, which regulates the
formation, and function of the trusts, powers and duties of trusties in dealing
with trust properties.
Parties to a Trust
Trust is an obligation attached to the property thereby
indicating how the property is to be used and who are the beneficiaries of the
trust Property. It is an agreement between the author of the trust and the
trustee i.e. the manager of the trust property and the owner of the trust property. A trust may be formed by any person Competent to contract, or with
the permission of the court by a minor or on behalf of minor. A trust consists
of more than one person. The person that is the owner of the property, who
reposes confidence in another to manage the property is called author of the trust
or the settler.
The person who manages the property as per the directions
of the author of the trust is a trustee. Both the author of the trust and the
trustee are parties to the document called trust deed which defines the objectives and functions of the trust.The institution is called the trust.Apart from the author of the trust and the trustee/s, the party who is entitled
to the benefits of the trust is called the beneficiary, who is not a party to
the trust deed. The beneficiary has the right to insist that the trust property
is to be used for their benefits although they are not a party to the trust
deed. Any person capable of holding the property can be trustee but not the
Government of India. Likewise a government servant cannot be a trustee of
mosque, temple, church or other religious institutions.
Ingredients of a Trust:
The important ingredients of a trust are:
(1) The objectives
must be certain,
(2) The
beneficiaries must be certain and clear and
(3) Definition of
the trust property must be clear and identifiable.
The trust cannot be created
orally and it must be in writing duly signed by the author of the trust.Trusts
are of many types.A private trust is a trust where the beneficiaries are the legal heirs of the author, or a group of individual. A public trust is one
where the beneficiaries are whole lot of public.The trust may be partly public
and partly private. A charitable trust is created for relief, advancement of
education, religion and other purposes beneficial to the community at large.
A trust cannot be created for the following purposes
1.Any purpose which is forbidden by law.
2.Any purpose if permitted would defeat the
provisions of law.
3.Fraudulent purpose.
4.The trust which involves or implies any
injury to the person, property of another.
Creation of Trust
A trust may be created by way of a document called the
Trust Deed. The Trust Deed is compulsorily registerable under section l7(b) of
Indian Registration Act 1908. The stamp duty payable on the trust deed is
governed by the Indian Stamp Act 1899, and falls within the powers of the State
Governments. Hence the stamp duty varies from State to State.The Indian Trust Act, 1882, does not apply to public or private religions endowments. Section 18
of Transfer of Property Act 1882 relaxes all restrictions, in case of
properties transferred for benefit of public like advancement of knowledge,
religion, commerce, health and other allied objectives. A trustee cannot
delegate his duties to another, except clerical duties and must have the final
control over such delegation.
Bailment and Trust
Often bailment and trust are confused. In bailment, there
is delivery of goods from one person to another person for some purpose and on
completion of such purpose; the goods have to be returned.In case of trust,
the property is transferred in favor of trustee for the benefit of another
person. In bailment, the person who received the goods is not the legal owner,
but the trustee is a legal owner of the property.
Rights and obligations of Trustee
The duties of the Trustee shall have to be clearly
defined; he should comply with the terms of the trust deed, as per the
directions of the author of the trust. He has to get acquainted with the
property of the trust and take required care about the genuineness and
recoverability of the investments of the trust money.The trustee should,
protect the title of the trust property, if necessary, by instituting legal
proceedings. He should not set up any title adverse to the beneficiary.He has
to exercise proper care and be impartial and should prevent wastage and convert
any perishable property to permanent or profitable in nature.He has to
maintain proper accounts and adopt proper investment strategies.The trustees
cannot commit any breach of trust, cannot set off the loss occurred because of
breach of trust in one portion of the trust property against profit of another portion of trust property. When a breach of trust is committed by one of the
trustees, all the other trustees are liable to the beneficiary for the total
loss sustained. The trustees have certain rights, like possession of the trust
deed, title deeds of the trust property, reimbursement of expenses, right to
settlement of accounts, right to seek the opinion of the court.
Maintenance
of Trust Properties
The trustee may lease the trust property for a period not
exceeding 21 years without the permission of the court,may sell the property in lots, by public auction, or by a private contract. He may also sell under
special conditions and buy and resell.He has powers to make the investment of
the trust property, which must be in securities listed in Trust Act.Any
investment other than in the listed securities must be with the written consent
of the beneficiary.He may apply the property of the minor for maintenance of
minor with proper care and discretion.After a person accepts to manage a trust
he cannot renounce it except with the permission of the court, or with the
consent of all the beneficiaries.
Trust property cannot be used by the trustee for his own
benefit, and any benefit derived from out of the trust property must be
transferred to the trust. It is to be noted that the trustee cannot purchase
the trust property of which he is trustee.Even his agents cannot buy the same.Further,
trustee or his agent cannot buy the beneficiaries interest and cannot be a
mortgagee, lessee of the trust property without the permission of the court.
Similarly co- trustees cannot lend among themselves.
If a trustee wrongfully sells the trust property, the
beneficiaries have a right to follow the trust property so long it is traced
notwithstanding the intermediate ownership except in case of bonfide sale for
value without the notice of the trust.
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