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
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 anyinjury to the person, property of another.
5. The court regards the purpose as immoral or
opposed to the public policy.
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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