Trust

  1. Who can be appointed as trustees?

There is no boundation as to who can be appointed as trustees in a private trust. Any individual – family members, relative, friend, company, Firm, Corporate body, etc.. can be appointed a trustee in a private family trust.

  1. How is the trust income taxed?

The trust income is taxed as per the structure of the trust. If it’s a specific trust i.e. the trust income to the beneficiary is known then all the income of the trust is taxed at the beneficiary level. This means the income is considered to be the beneficiary income and gets taxed at the beneficiary rate of income tax. In case of other structure where the distribution of income is left to the trustee, the income tax rate will apply differently. In case of only special needs child as a beneficiary, the income will be taxed at the beneficiary rate of tax since he/she is the only recipient if 100% income.

  1. Is there any monitoring authority for private trust?

No there is no day to day monitoring authority over a private family trust. Since the trust is a legal entity the matter of the trust can only be resolved in the court. However, there are no restrictions who can file a complaint. Any well-wisher of the child including the institution can file a complaint if seen the trust being mismanaged.

  1. How can trust be made secure?

The structure of the trust decides how much security it can provide to the child future. Appointing good trustees, powers given to trustees, the succession of trustees, the provision of managing assets, the distribution of trust income, involving a family member with trustees and many other aspects are decided at the drafting of the trust deed. High importance should be given to all these provisions and should be well thought out before finalizing the trust deed. These provisions will ensure that good security has been provided to the trust to manage child affairs.

  1. Can minor become a trustee under Indian trust?

No, as per the laws of the trust act a minor cannot be appointed a s a trustee in a private family trust, The minimum age of a trustee is 21 years of age.

  1. What is the benefit of Revocable Trust?

A revocable trust is most beneficial when you have multiple properties and would like to bring it under a structure. By bringing it under a trust structure the management of multiple properties is more efficient. In another benefit when you are not very clear of the special needs child life stage i.e. whether he/she will remain dependent for life then creating a revocable trust is beneficial. Then you can easily modify the trust deed as per your requirement in the future.  However, the taxability and legal movement of the assets to the trust varies in this structure. One should look at all perspectives before finalizing the trust structure.

  1. How can a family member, including an NRI, play a role in the trust functioning if not as a trustee?

There is a role of a protector which is fairly unknown in India. The protector does not have any legal sancity in India. But in a private family trust, there are no standard terms and so the settlor can decide the role of persons involved and the powers given to them. So a protector can be appointed who can become a party to many of the decision of the trust. More details on this can be viewed here:

Role of a Protector

  1. If NRI is the only relative available what’s the recourse for appointing a trustee?

In most cases, only family members are considered for appointing as trustees. If the trustee is an NRI then the specific provision under the Indian Trust Act makes it difficult to continue him as a trustee after six months. Still, NRIs can be part of the trust in different roles including a trustee but within some specific legal structures. However,  as said earlier there is no boundation legally who can be appointed as a trustee. Parents can look towards friends, relative or professional trustees to be appointed as trustees.

  1. Can the protector be given powers to appoint or remove trustees?

A protector can be handed certain powers to ensure he has a good say in the functioning of the trust. However, its good to avoid giving exceptional powers overruling trustees since that can create conflict. The objective is to have a family member involved in the functioning of the trust.

  1. Do assets need to be transferred now to the trust?

No, the transfer of assets can be planned in phases and as per the wish of the settlor. The trust needs initial funding during the formation. The assets can be transferred to the trust in a lifetime or through the Will.

Back