Shashi Bekal, Advocate

Abstract

In this article, an attempt has been made to discuss the roles and responsibilities of a Settlor, Trustees and Beneficiaries under the Indian Trust Act, 1882. This article will be helpful for individuals, and advocates, solicitors, chartered accountants and consultants who advise families on succession planning. The author aims to cover aspects such as the formation of a private trust, functions, taxation, governing statutes and other aspects in the subsequent articles which will follow.

Abstract

1.    Introduction

2.    Roles and Responsibilities

2.1. Beneficiary

2.2. Settlor

2.3. Trustee

3.    Dénouement

1. Introduction

As discussed in the last article trusts are established for the smooth succession of the settlor’s estate and business while he is alive or after his death. The trustees are appointed to maintain and regulate the estate as per the intentions of the settlor i.e., for the beneficiaries and their well-being.

In this chain, the settlor, the trustee and the beneficiary all have a certain role to play with certain duties and responsibilities cast upon them

2. Roles and Responsibilities

2.1. Beneficiary

The person for whose benefit the confidence is accepted is called the “beneficiary”.

According to section 56 of the Indian Trust Act, 1882, as a beneficiary to the estate of the Settlor, a beneficiary has the rights to the fruits of the estate to the extent of what vests in them as per the Trust deed. To say, the beneficiary is entitled to ensure that the intentions of the settlor are complied with. The beneficiary can sue their own right in the trust and also institute a suit for non-performance against the trustees.¹ Further, if a beneficiary has enough reasons to believe that a trustee is going to violate his duty, the trustee may approach a court seeking an injunction from the court to retrain the trustee from wanton exercise of power.²

An interesting case, where a woman filed a suit against her husband for the recovery of dowery paid by her father to her husband under section 6 of the Dowry Prohibition Act, 1961, inter alia it was held that a person receiving dowry holds the property in trust for the benefit of the woman.³

If required, the beneficiaries can compel the trustees to sell the trust property.⁴ According to section 58 of the Indian Trust Act, 1882, where the beneficiaries are competent to contract they can compel the trustee to transfer the property to them or any third person.^5,6 Of course, this transfer is subject to the beneficiary satisfying that he or she is the ultimate and only beneficiary.⁷

According to section 57 of the Indian Trust Act, 1882, a beneficiary has the right to inspect and make copies of the instrument of trust, the documents of title relating solely to the trust- property, the accounts of the trust-property and the vouchers (if any) by which they are supported, and the cases submitted and opinions taken by the trustee for his guidance in the discharge of his duty.

According to section 59 of the Indian Trust Act, 1882, Where no trustees are appointed or all the trustees die, disclaim, or are discharged, or where for any other reason, the execution of a trust by the trustee is or becomes impracticable, the beneficiary may institute a suit for the execution of the trust, and the trust shall, so far as may be possible, be executed by the court until the appointment of a trustee or new trustee. According to section 60 of the Indian Trust Act, 1882, the beneficiaries have the right to proper trustees and a proper number of trustees.

As per section 61 of the Indian Trust Act, 1882, a beneficiary can compel the trustee to act according to his duties. A beneficiary can sue another beneficiary for breach of trust under section 68 of the Indian Trust Act, 1882.

2.2. Settlor

The Settlor should de jure transfer ownership of the assets to the trustee of the Trust. As per section 6 of the Indian Trust Act, 1882, a trust is created when a settlor has an intention to create a trust, and a purpose, recognizes the beneficiaries and transfers properties to the trustees. The settlor also has the right and duty to decide the trustees of the trust.

Therefore, the role of the settlor is the most important for the creation of the trust but such a role is minimal once the trust is formed unless the trust is revocable. In revocable trusts, the settlor has the power to revoke the trust property and transfer the same back to the settlor.

2.3. Trustee

As discussed in part 1, the person who accepts the confidence is called the “trustee”. No individual is bound to accept a trust. A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance. Instead of accepting a trust, the intended trustee may, within a reasonable period, disclaim it, and such disclaimer shall prevent the trust-property from vesting in him. A disclaimer by one of two or more co-trustees vests the trust-property in the other or others, and makes him or them the sole trustee or trustees from the date of the creation of the trust.

Once they accept trusteeship they have the power to manage the property which includes the power to acquire more property or sell existing ones. As per section 46 and 47 of the Indian Trust Act, 1882, once a trustee accepts trusteeship the same cannot be renounced or delegated, except with the permission of the Court, major beneficiary or in the event of an expressed power in the trust deed.

The income of the trust will accrue in their hands and they have to discharge or statutory liabilities and taxes. As per section 51 of the Indian Trust Act, 1882, a Trustee cannot use trust property for their own profit. They also have to comply with the law in force viz. Income-tax, Goods and Services Tax, Stamp Duty et cetera. The trustees are liable to refund if there is any income in the trust to the beneficiary.⁸ However, as they are only working in a fiduciary capacity they are expected to discharge their duties with integrity and as per the intentions set out in the trust deed. They cannot act in a fraudulent manner and misappropriate the assets of the trust. Such an act could lead them to face legal consequences.

According to section 12 of the Indian Trust Act, 1882, A trustee is bound to acquaint himself, as soon as possible, with the nature and circumstances of the trust-property; to obtain, where necessary, a transfer of the trust property to himself; and (subject to the provisions of the instrument of trust) to get in trust-moneys invested on insufficient or hazardous security.

Moreover, as per section 13 of the Indian Trust Act, 1882 a trustee is bound to maintain and defend all such suits, and (subject to the provisions of the instrument of trust) to take such other steps as, regard being had to the nature and amount or value of the trust- property, may be reasonably requisite for the preservation of the trust-property and the assertion or protection of the title thereto.

Under section 18 of the Indian Trust Act, 1882 trustee is bound to take measures to prevent waste of trust property by a beneficiary. Where the trust-property consists of money and cannot be applied immediately or at an early date to the purposes of the trust, the trustee is bound to invest the money in the securities as per section 20 of the Indian Trust Act, 1882.

A trustee has the power to Power to apply property of minors, etc. for their maintenance as per section 41 of the Indian Trust Act, 1882.

Under section 23 of the Indian Trust Act, 1882 where the trustee commits a breach of trust, he is liable to make good the loss which the trust-property or the beneficiary has thereby sustained, unless the beneficiary has by fraud induced the trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with full knowledge of the facts of the case and of his rights as against the trustee. However, as per section 26 of the Indian Trust Act, 1882, a trustee cannot be held liable for a co-trustee’s default.

As per section 32 of the Indian Trust Act, 1882, a trustee has the right to be reimbursed for the expenses borne by him on behalf of the trust.

3. Dénouement

In this short article, we have understood the roles and responsibilities of the settlor, Trustee and beneficiary. It is imperative that a robust trust deed must be in place to express the powers, responsibilities, dos and don’ts of the parties to the trust deed to impart more clarity and avoid any unpleasant situations.

The series of articles which is proposed to be written on the law governing Family trusts is aimed to cover, aspects such non-resident trusts, Amendments to a Trust deed, Income-tax implications, implications of the law of evidence and other relevant aspects.

1. Sections 5(b), 6 and 42(a) of the Specific Relief Act, 1877
2. Balls v. Strutt 1 Hare 146
3. G. Renuka v. VM Papa Rao AIR 1955 AP 130
4. Marsden v. Kent (1877) 5 Ch D 598
5. Section 9 of the Indian Trust Act, 1882
6. Vijaya Ramraj v. Dr. Sir Vijaya Ananda AIR 1952 All 564
7. Juthika Sircar v. Official Trustees of West Bengal AIR 1973 Cal 382
8. Mahendra Rambbaj v. Controller of Estate Duty (1965) 55 ITR 1