2. Definition
As per Section 3 of Indian Trust Act,1882:
A “Trust” is an obligation annexed to the ownership of
property, and arising out of a confidence reposed in and
accepted by the owners, or declared and accepted by
him, for the benefit of another and the owner.
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4. Terms Related to Trust
Trust property/Trust Money
Beneficial Interest
Instrument of Trust
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5. Important Aspects:
Mere Transfer of Income alone is not
sufficient
Transfer should be irrevocable
For Movable property, Ownership
should be transferred
For Immovable property, writing and
registeration is mandatory*
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6. For Valid Trust
Author must Indicate:
His Intention to Create Trust
The Purpose of Trust
The Beneficiary
The Trust Property
Transfer of property to Trust
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7. Types Of Trusts (1)
Specific Trust
Discretionary Trust
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8. Types Of Trusts (2)
Public Trust
Private Trust
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10. Settlor of a Trust:
A person who is competent to contract
as per Indian Contract Act,1882 and is
the legal owner of the property
concerned.
A Limited Company can be a Settlor
A karta can be a Settlor on Behalf of
HUF.
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11. Trustees:
Anyone can become a Trustee. A
Settlor himself can become a sole
trustee or one of the Trustee.
Note:
The Clubbing provision is Governed by the Relationship between
the settlor and the Beneficiary and not that between the Trustee
and Beneficiary
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12. Tax Planning Tips
It is Advantageous to have specific Trust for a Living
beneficiary and a Discretionary Trust for Unborn
persons
Trust should be in writing and Registered. Income of
Oral Trust is subject to Maximum Marginal rate
Spouse should not be Settlor for the benefit of
his/her spouse.
Father/Mother/Grand Parents should not Settle any
Property for the benefit of minor
child/Children/Grand Children
Inturn Maternal GrandParents may open a trust for
Minor Grand Childrens
Also Brother in Law may Settle for Sister in Law and
Vice Versa
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13. Trusts for Relatives
Private Trust for Spouse
Private Trust for Minor
Son/Daughter
Private Trust for Major Son
Private Trust for Married Daughter
Private Trust for Daughter-in-law
Private Trust for Parents
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14. Private Trust For Spouse
When spouse’s in reciept of Regular Gifts.
Why:
1.) Where Spouse is Illiterate or Less
Educated.
2.) Where one doesn’t have faith in Spouse’s
Financial management .
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15. Private Trust For Spouse
Settler Should not be:
1. Husband
2. Father/Mother –in-Law
No Restriction on Trustees
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16. Private Trust For Minor
Income of Minor to be clubbed with parent
with higher Income
Exception:
1. Where earning is from some specialised skill
2. In case of Physically Disabled Child.
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17. Private Trust For Minor
Tax Planning Tips:
1. Create 100% Specific Beneficiary Trust and
make it a Partner in Partnership Firm
2. Create 100% Specific beneficiary trust with
the provision of deferment of the benefit
during the minority.
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18. Private Trust for Major Son
Benefits:
To teach Financial Management.
No restriction on Settler
No risk of Clubbing of Income.
Mentioning of share of each son is required in
case of joint trust.
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19. Private Trust for Married Daughter
Benefits:
To avoid the money belonging to daughter,
given through gifts to be used by In laws in
case of Financial Crisis
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20. Private Trust for Daughter-in Law
Helps to create separate Income tax file
Before Marriage:
Any one can settle the Trust
After Marriage:
Spouse and father/mother in law should avoid
become settler
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21. Private Trust for Aged parents
To Support Old Parents with no sizeable
Income.
No Clubbing
No Restriction on Investments.
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23. Features
Advantageous for Ailing Senior Citizens
S.C can transfer all existing arrangement to
this Trust.
Tax Treatment of Gifts will be same as in case
of Individual and HUF.
The Trust Deed should thus Specifically
mention the method of distribution of assets
after demise or it should be mentioned through
will.
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25. Taxation on Discretionary Trust
Assessable to Income tax at maximum Marginal
rate of Income tax
Maximum Marginal rate means the rate of
Income Tax applicable in Relation to the
highest slab of Income in the case of an
Individual.
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26. Exceptions
Where Discretionary Trust Created Through
Will
Where DT is mainly created for the benefit of
relatives in unfortunate circumstances e.g.
orphans or Physically or mentally retarded.
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27. Discretionary Family Trust
This is created for the Holistic Safety of
Family members
It is to provide future Safety and Security for
existing and Future family members.
It can be created by a living person and which
can become immidiately Operational
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29. Taxation
In case DFT is created by living person , it will
be taxed at Maximum marginal rate.
If Created through Will, then at normal Slab
rates of Individuals.
No tax liability on Receiving Gifts more than Rs
50k from Non Relatives( Reason being the
provisions of IT does not apply to DFT)
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31. Hindu Legal Heirs
Class 1
1) Son, Daughter,
Widow, Mother
2) Son/daughter of
Predeceased son
3) Son/Daughter of
Predeceased
Daughter
4) Widow of
Predeceased Son
Class 2
1) Father
2) Son’s Daughter’s
Son/daughter,Bro
ther,Sister
3) Daughter’s Son’s
son/Daughter,
Daughter’s
daughter’s
daughter
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32. Legal Heirs
5)
Son/Daughter/Wid
ow of a
Predeceased son
of a Predeceased
son
4) Brother’s
son/daughter,
Sister’s
son/daughter
5) Father’s
Father/Mother
6) Father’s
/Brother’s Widow
7)Father’s
brother/Sister
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34. Overview of Will
A will is the statement of Intention for
disposing of the Assets and Liabilities of a
person after his death.
If a Person dies Intestate, then his various
assets, get divided among his Legal Heirs as
per Hindu Succession Act or as the case may
be.
A Will is not an Irrevocable Document.
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35. Wills
When one makes number of wills in respect of
particular asset, it is the last will or that
carries latest date that will be held valid.
Will has to be prepared properly by self signing
with two witnesses, otherwise it will be held
invalid
A person should clearly state in his will that
s/he is of sound Mind and it is being prepared
without any coercion
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36. Few points to Consider
You are Free to Change your existing will.
Whenever a new will is written , particulars of
previous wills must be mentioned.
The name of executor/alternate executor
should be mentioned in the will
Through Will Assets can be Bequeathed to
specified persons with conditions attached
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37. Few Points to consider
A will generally make mention of all the
existing assets and how the future assets ( If
any) to be distributed.
It is fine if you do not give details of
distribution of each and every item
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38. Advantages of Will
“ Making a will leads not only to more
efficient, easy and quick distribution
of wealth among your Successors; it
will also pre empt lengthy and
expensive legal disputes.”
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39. Advantages
It provides you with Freedom in Bequeathing
your assets
It is easy to reward and provide monetary
benefits to relatives, friends.
It helps you to bridge a gap between Rich and
poor Legal Heirs
You can Create a Annual Charge through Will
which cannot otherwise be created.
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41. Drafting a Valid Will
Write down all your
Assets/Liabilities
Prepare a List of all those to whom
you wish to bequeath something.
Match Both the above
Select Executor
Select Witnesses
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42. Drafting a Will
If Trust is to be created through will
then full details must b mentioned
If HUF to be opened through will Full
details must be mentioned
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43. Tax Planning Through Will
Create HUF though Will
Bequest to Minor Children
Transfer of Funds to Wife
Transfer of Funds to Daughter in Law
Through Discretionary Trust.
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Section 5 f Indian Trust Act says As regards Immovable property Trust is not valid unless it is registered. The only
Exception Is in the case of will where Registeration is not Necessary.
In Relation to Movable property no trust is valid unless the ownership of property is transferred to Trustee.
Specific Trust is one which provides for specific beneficiary whose share is naturally specified in the Trust Deed.
There can be 2 or more specific beneficiary.The Trustees of Sucha trust do not have any discretion apportioning
The income of the trust for the benefit of beneficiary.
A Discretionary trust on the other hand is a trust where beneficiaries are specific and ascertained , do not have
Specified shares in the income or property of thetrust. The manner of enjoyment of the trust fund is left to the
Discretion of trustees
Public Trust is normally made for Charitable and Religious Purposes
Private Trust or Family Trust is intended to provide for family, relatives, friends and others
