Why Expert Drafting of Trust Deeds is Important?

Challenges for Creating a Valid Trust Deed.

Registration of Trusts under the Indian Registration Act

An Inter Vivos Trust is a trust established while the Founder of the trust is still alive which safeguards and administers assets for the benefit of selected beneficiaries. Certain trusts which can be created for a person in his Will are called Testamentary or Mortis Causa Trusts. This includes trusts created on death of a person for minor children etc. The Founder or Testator nominates the Trustees who attend to the administration of the Trust Fund (assets in the Trust).

We offer the following services with regards to trusts:

• The creation and Drafting of Inter Vivos Trusts and Testamentary Trusts
• The preparation and registration of Charitable Trusts
• Formal amendments to Trust Deeds and change of Trustees
• Drafting of Trustees’ minutes
• Drafting of resolutions

The drafter should have excellent knowledge of English Grammar and as well as Legal English. The document must be logically clear and concise and to avoid grammatical and lexical errors with respect to the style of a legal text. At the end editing of the writing ruthlessly is necessary by omitting unnecessary words and proof reading is very much important otherwise opposite lawyer or client can undermine the credibility and you can be defeated.

It is particularly necessary for the person drafting the deed to bear in mind the three certainties of a valid trust which are —

1. certainty of declaration, i.e. imperative nature,
2. certainty of subject matter, i.e. property in which it acts,
3. certainty of object or beneficiary.

Any one drafting the deed of a trust in India has to bear in his mind several enactments, particularly, the Indian Trusts Act, 1882, any local / state enactment relating to trusts, like the Bombay Public Trusts Act, 1950 for the State of Maharashtra and the Income Tax Act, 1961. He should also keep in mind the ratios of the various judicial pronouncements dealing with the scope of “purpose” and deciding whether a particular purpose is charitable or private.

There should be sufficient clarity as to the working of the trust and detailed provisions should be made therefor so that there is no ambiguity.

For construction of deed it must be read as a whole.

It is a well settled rule of interpretation that the intention of the settlor must be gathered from the settlement as a whole and no particular clause should be construed in isolation for the intention of the author of the settlement. It is to be found not in one part of the settlement or in the other but in the entire deed and that intention can best be gathered by viewing a particular part of the settlement, not detached from its context in the settlement, but in connection with its whole context. (Satya Vijay Pate? Hindu Dharamshala Trust v. CIT (1972) 86 ITR 683 (Guj).

What if several parts of the deed may be held to be invalid?

The invalidity of a part of the trust deed does not invalidate the remainder where the valid portion is independent and severable from the invalid portion. (CITy. HamdardDawakhana (1960) 39 ITR 144 (Punj). Similarly, the invalidity of the deed of gift in respect of one item cannot affect its validity in respect of another, according to CIT v. Juggi?al Kama?apat (1967) 63 ITR 292 (SC).

For correct interpretation of the deed, substance of the matter, rather than precise language is relevant. If, upon scrutiny of all the relevant provisions of the indenture of trust, it appears that a valid trust as contemplated by the Indian Trusts Act was created, then instead of giving too much importance to want of precise language, the substance of the matter should be looked at. (CIT v. Trustees of Dr. Divekar Charity Trust (1977) 110 ITR 227 (Born).

Binding nature of the Trust Deed.

It is a well settled rule of interpretation that the intention of the settlor must be gathered from the settlement as a whole and no particular clause should be construed in isolation for the intention of the author of the settlement. It is to be found not in one part of the settlement or in the other but in the entire deed and that intention can best be gathered by viewing a particular part of the settlement, not detached from its context in the settlement, but in connection with its whole context. (Satya Vijay Pate? Hindu Dharamshala Trust v. CIT (1972) 86 ITR 683 (Guj).

As regards to registration of Trusts under the Indian Registration Act, it may be noted that it is the trust-deed and not the trust which is required to be registered. Thus, for this purpose, a trust deed has to be framed incorporating the necessary provisions for management of the affairs and objects of the trust. This deed has to be registered with the Sub-Registrar of the Registration Department of the respective State Government. Besides, a trust created by a will may also be registered under the said Act by registering the will itself.

A trust-deed should be presented for registration within four months of its execution (Sec.23), in the office of the Sub-Registrar within whose sub district the whole or some portion of the property is situate. (Sec. 28). If a document cannot be prescribed for registration within the aforesaid period, owing to urgent necessity or unavoidable accident, it may be presented for registration within a further period of four months along with a fme which shall not exceed ten times the amount of registration fee (Sec. 25.). Registration fees, as prescribed by the state Government, is payable on presentation of the document. (Sec.78).

A trust deed relating to immovable property must, for the purposes or registration, contain a description of such property, sufficient to identify the same. (Secs.2 1 & 22). If there are any interlineations, blanks, erasures or alterations in a deed, the same must be duly attested by the person(s) executing the deed (Sec.20).

When the Registering Officer is satisfied that the provisions of the Act as applicable to the document presented for registration have been complied with, he shall endorse thereon a certificate containing the word “registered”, together with the number and page of the book in which the document has been copied. Such certificate shall be signed, sealed and dated by the Registering Officer, and shall then be the conclusive evidence that the document has been duly registered. (Sec.60).

Procedure for Registration of Trust under the Indian Trusts Act, 1882

1. Decide the following:
1. Name of the trust
2. Address of the trust
3. Objects of the trust (Charitable or Religious)
4. One settlor of the trust
5. Two trustees of the trust (minimum)
6. Property of the trust — movable or immovable property (normally a small amount of cash/cheque is given to be the initial property of the trust, in order to save on the stamp duty).
2. Prepare a Trust Deed on stamp paper of the requisite value. The rates of stamp duty varies from state to state. Kindly check the current rate of stamp duty applicable in your state.
3. Requirement for registration of Trust Deed with the Local Registrar under the Indian Trusts Act, 1882:
1. Trust Deed on stamp paper of requisite value.
2. One passport size photograph & copy of the proof of identity of the settlor.
3. One passport size photograph & copy of the proof of identity of each of the two trustees.
4. One passport size photograph & copy of the proof of identity of each of the two witnesses.
5. Signature of settlor on all the pages of the Trust Deed.
6. Witness by two persons on the Trust Deed.
4. Go to the local Registrar and submit the Trust Deed, along with one photocopy, for registration. The photocopy of the Deed should also contain the signature of settlor on all the pages. At the time of registration, the settlor and two witnesses are required to be personally present, along with their identity proof in the original.
5. The Registrar retains the photocopy and returns the original registered copy of the Trust Deed.

Speak to our Trust Deed writing specialists before making your Trust all you need to do is enter your contact details and a time that would be convenient for you. Our Trust writing specialist will contact you within 24 hours of receiving your request.