How to Start a Trust in India : An 8-Step Journey of Asset Management

Are you planning to manage your wealth by forming a trust? 

But unsure how and what to begin with?

Setting up a trust is a significant method to secure your property and contribute something to society. It is also a managing assets in a structural way. Therefore, you might be looking for the complete procedure of setting up a trust in India, which may seem to be a challenging task. 

Don’t worry! We are here to help you with how to start a trust in India and other important aspects of trust formation. 

In this guide, we’ll discuss everything required for the process and assist you at every step. Let’s start with a basic overview of trust formation!

Why Should One Create a Family Trust in India?

Tax Relaxation

Trust formation in India can provide many tax benefits or even exemptions. Charitable and religious trusts enjoy significant tax deductions under Section 11(3) of the Income Tax Act in India. Therefore, it is an efficient method of transferring property to the next generation with tax benefits.

Family Wealth Conservation

With a trust, families can distribute their properties as per their wishes, decreasing any risk of dispute over the wealth in the future. Through this, families can control their wealth without having management responsibility. Also, trusts can be adjusted according to the beneficiary’s needs as time changes.

No Need for Property Transfer

The settlor transfers power over assets to the trustee, which does not change even after the settlor’s death. Therefore, there is no need for a will for ownership transfer for the property under the trust. Getting a probate is a tedious task, so creating a trust can take the family out of hardships after the owner’s death.

Asset Protection

People can safeguard their property from financial uncertainties and lawsuits by creating a trust in India. Settlor and beneficiaries completely lose control over trust property after forming a trust because the trustees are the legal owners of it. Therefore, they can save their property from unstable conditions in the country.

Helpful in Immigration and Emigration Matters

Many families choose trust formation to get tax benefits when they shift to another country. Additionally, it helps them transfer their assets to the new country without any loss, as a trust is a different entity managed by the trustee.

What is the Required Documentation for Trust Formation in India?

Below are the essential documents to register a trust in India.

1. Trust Deed– It is the most important document for registering a trust, which is required to be drafted in a particular format by professionals.
2. Address and identity proofs of the Settlor
3. Address and identity proofs of the trustees
4. Recent and well-recognized passport-size photographs of the settlor and trustees
5. PAN (Permanent Account Number) Card is a necessary document to be carried from the start of the registration process.
6. Documents of a registered office for the trust 
7. Affidavit and Undertaking documents
8. Documents for the bank account and the trustees’ declaration documents 

Step-By-Step Guide on How to Start a Trust in India

Registering a trust in India is a complex task involving several steps as below.

Step 1: Drafting a Trust Deed

Preparing a trust deed is the first and most essential step for registering a trust.

In this, the owner composes a trust deed detailing the trust’s governance structure, regulations, and goals.

It contains the details regarding the trust’s name, address, and trustees. Also, it explains a termination clause, how recruitment and removal should be carried out for any job or title in the trust, and how the trust money should be used.

After drafting the deed, the settlor must confirm whether it complies with all the Indian trust laws.

Step 2: Selection of Trustees

Selecting worthy and capable trustees is of great importance for a trust, as it will affect the trust’s management and accomplishments. Therefore,

Select the people who are dedicated to attaining the trust’s objectives and goals. They must be reliable and capable of making effective decisions for the welfare of the trust.

Trustees must have valid experience and skills in managing a trust that can be helpful in various legal procedures.

Step 3: Obtaining the Necessary Documents

Collecting the required documents is an essential step in the paperwork for trust registration in India. Some of the main documents required are

Citizenship proofs of trustees. It can be their Unique Identification Number Cards (UID Aadhaar), voter cards, or passports.

Residence proofs of trustees. It can be their electricity bill or house rent documents.

Passport-size photographs are required for legal paperwork.

Step 4: Specifying the Trust Assets

This is necessary to describe the wealth that will be employed for the welfare of the beneficiaries. Therefore, the settlor must mention the property to be included under the trust management. The property can have movable assets, such as Shares of a company, Mutual funds, or bank accounts.

Or immovable property, including buildings or land.

They must provide the legally valid documentation of ownership of the assets that must be included in the trust deed documents. 

Step 5: Defining the Beneficiaries

Another important step is to state the people or groups benefiting from the trust. Therefore, the trust deed must include details of these beneficiaries and explain how they will benefit from the created trust.

The beneficiaries can be family members, a specific social group, or an organization. 

Therefore, specifying the beneficiaries guarantees the proper and honest functioning of the trust. Also, the trustees fulfil their duties to achieve the intended goals of the trust.

Step 6: Notarization of the Trust Deed

Getting a trust deed notarized and stamped ensures its legality and probity. There may be some stamp fees required as per the jurisdiction. The deed must be signed and stamped in the presence of the witnesses to confirm its validity.

Step 7: Requesting Registration of the Trust

After preparing all the needed documents, the settlor must submit a registration form.

Carefully fill the form and submit it to the relevant authority or registrar along with the trust deed and gathered paperwork. The trust registration forms are submitted under the Indian Registration Act, 1908.

There may be a fee for the registration process, depending on the place or state norms.

Step 8: Confirmation and Validation of the Trust

Verification and validation of the trust are the last but key steps of trust registration in India. These include

Trust Registrar reviews the submitted documentation for the trust to verify its validity according to the state or central trust laws.

The registrar can ask for an explanation or modifications to the deed if there is any error.

If everything is per the laws, the trust receives a registration certificate along with a unique trust registration number.

After registering the trust, the settlor must get a TAN (Tax Deduction and Collection Account Number) and PAN (Permanent Account Number) from the income tax authorities. 

Open a bank account to operate the finances related to the trust.

Different Kinds of Trusts in India

The Indian Trusts Act, 1882, mainly defines two types of trusts. These are

Public Trusts

This type of trust is created solely for the general public’s welfare. These can be for charitable, educational, or religious purposes. For example, Tata Trusts (charitable trust) and HelpAge India (non-profit NGO) are prominent public trusts in India.

Private Trusts

This type of trust is formed for the interest of specific family members, people, or organizations. The main goal of such trust is to manage a family’s wealth and ensure family members’ well-being. It is regulated under the Indian Trusts Act 1882. This includes family trusts and property protection trusts.

Other Types of Trusts

• Charitable Trusts– It is formed for humanitarian purposes, including health, education, and environmental concerns.
• Religious Trusts– A trust that is created solely for religious motives.
• Family Trusts– It is a private trust set up for the welfare of family members.
• Irrevocable Trust– A trust that can not be modified or discontinued once it is created.
• Revocable Trust– It is also known as a living trust that can be ended or terminated by the creator at any time.

Trust Formation: An Effective Way to Safeguard Wealth

Trusts are a popular and efficient method to handle and oversee your property while contributing to society’s welfare. However, respecting the legal guidelines and norms is essential when setting up a trust in India. 

We hope with the detailed steps described in our blog, you’ll be able to create trust and get the maximum benefit involving tax deductions, asset protection, and efficient property management.

Wishing you the best for your future endeavours!

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FAQs

Q1: Whom can I choose as a trustee?

One can select any Indian citizen or Indian registered company as the trustee of a trust.

Q2: Can I create a trust for a specific period in India?

Time for a trust depends on its governance structure, operational framework, and goals. It can be created for years or generations. In India, a trust can be set up for a maximum of three generations (99 years).

Q3: Do trusts need to file tax returns?

In India, trusts file income tax returns if their income comes in or exceeds the taxable limit.