I want to form a trust in favour of my daughter, who is 8-years-old, to meet her education needs. How should I go about this and what precautions should I take? Can I also bequeath my house to this trust? I am governed by Christian laws.
To achieve the above purpose, you would need to create a private trust for the benefit of your daughter. A private trust can be created by you either during your lifetime through a non-testamentary instrument or a though a testamentary instrument, namely your Will, which would take effect after your demise .
As per the Indian Trusts Act, 1882, for the creation of a valid private trust, the person creating the trust (known as the author or settlor) should state in the instrument creating the trust: (i) his/her intention to create the trust, (ii) the purpose or object of creating the trust (which has to be for any lawful purpose) and (iii) the identified beneficiary or beneficiaries of the trust. Further, the author must also transfer the initial trust property to the trustees of the trust at the time of creation of the trust, unless the trust is being declared under a Will—in which event the property will get transmitted to the trustees (as trustees of the trust) at the time of your death and the trust will come into effect at that time.
In case the trust is being created under your Will, your Will should be duly executed as per the provisions of the Indian Succession Act, 1925.
At the time of creating the trust, the author is required to appoint a trustee, or trustees, for the purpose of administrating the trust and such trustees must accept the trust and the responsibilities.
Please note that as per section 56 of the Indian Trusts Act, 1882, if the trust is created for the sole benefit of your daughter (where she is the sole beneficiary under the trust) when she becomes a major (and if she is otherwise competent to contract), she would be entitled at any time thereafter, to require the trustee to transfer the trust property to her or to such person as she may direct, in which event, the trust will come to an end.
While at the time of creation of the trust you would have to settle some property in the trust (in order to create a valid trust), it would also be open to you thereafter to settle further properties in the trust (which will be held by the trustees in the trust and administered in accordance with the trust deed) by executing appropriate documentation for this purpose.
Alternatively, you may set up the trust under your Will itself and this would take effect only from your death. A Will may be changed by you at any time and any number of times.
Please note that while stamp duty will be payable on the property that is transferred to the trust during your lifetime, no stamp duty is payable on the transmission of your properties settled in trust under your Will.
Additionally, if an immovable property is being settled in the trust during your lifetime, then in addition to stamp duty, the transfer would also be required to be registered under the Indian Registration Act, 1908.
It is advisable to set out whether the trust is to be: (i) discretionary (where the distributions would be at the discretion of the trustee) or non-discretionary (where the author states specifically how the distributions of the trust property are to be made to the beneficiary) (ii) revocable or irrevocable.
This also has relevance from an income tax perspective vis-a-vis the author as well as the beneficiary, for which we recommend that you seek independent tax advice to ensure that the structure adopted is the most tax efficient.
Marylou Bilawala, partner, Wadia Ghandy & Co. Advocates, Solicitors and Notaries.
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