: February 09, 2012 |
: Civil Laws
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Critical Analysis of who can be a trustee and beneficiary of a trust under Indian Trust Act 1882
Indian Trusts Act 1882 deals with all the matters related to trusts, trustee and beneficiaries .According to section 10 of Indian Trusts Act 1882 states that “Every Person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.”
The position of trustee is an extremely important one, as trustees are in a "fiduciary" relationship with the trust’s beneficiaries. This means that they are in a special position of trust and accordingly have a number of significant duties. If you are a trustee, it is vital that you familiarise yourself with those duties, as you can be liable for "breach of trust" if you do not full fill them. Any person who can own property may be a trustee. A minor (someone under 20) can be a trustee, but a court would have to appoint someone to act as trustee until the minor turns 20.
In general, the main duties of trustees are:
# to act in the best interests of the beneficiaries of the trust
# to act in an even-handed manner between beneficiaries and between groups of beneficiaries
# not to use knowledge or influence gained as a result of being a trustee to advance the trustee’s own position (except when the trustee discloses his or her personal interest to the settler of the trust and obtains # the settler’s informed consent)
# to act personally rather than delegating decisions to others (except if the trust document explicitly permits delegation)
# to act honestly and with the level of skill and care that would be expected of the reasonable businessperson in administering the affairs of others
# to be thoroughly familiar with the terms of the trust in the trust deed (the main trust document), and with who the possible beneficiaries may be and what the assets and liabilities of the trust.
In trust law according to Section-9 of Indian Trust Act 1886 “Every person capable of holding property may be a beneficiary. A proposed beneficiary may renounce his interest underthetrust by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim inconsistent therewith.A beneficiary is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures. With the exception of charitable trusts, and some specific anomalous non-charitable purpose trusts, all trusts are required to have ascertainable beneficiaries.
Generally speaking, there are no strictures as to who may be a beneficiary of a trust; a beneficiary can be a minor, or under a mental disability (in fact many trusts are created specifically for persons with those legal disadvantages). It is also possible to have trusts for unborn children, although the trusts must vest within the applicable perpetuity period
The question who should be appointed trustee to some extent depends upon the nature of the trusts ,whether it was regarded as a hereditary trust or whether the trusteeship of each holder ends with him or it is the case of fresh appointment by court or some other competent authority In Kinloch v. Secretary of the State for India James L.J. observed that “The Government of India is not ,as it appears to me , capable of being a trustee ; nor is the Secretary of State in Council (the name by which the government can be sued) a person is capable of being trustee any more than the attorney-general in this country would be ,or any other person ,who sued in cases for ,or on behalf of the Crown”. But the present view is that the Secretary of State for India is capable of being ,a trustee.
Anyone capable of taking physical possession of or legal title of the property can be a trustee. And there is no limit to the number of trustees to hold the position in one trust. Generally there are more than one trustee , the trustees, with respect to each other, are referred to as co-trustees, and when acting jointly as a collective body are referred to as the Board of Trustees .The trustee should be at least someone capable and fit for executing the powers and duties honorably.
The trustee should be stationed within the jurisdiction of the court where the trust is located. But where the trust property is portable land, the trustee need not be stationed within any single jurisdiction. Non residency will not disqualify or preclude the trustee from carrying out his position; non residents of the state in which the trust is to be administered can be trustees. State law determines whether an alien can act as a trustee..
Appointment of the trustee
Appointment of the trustee should be done formally, expressly in writing, even though it will always be implied “the individual will use the trust property, or performs any act to carry out the trust for the interest of beneficiaries”. Once the acceptance has been tendered then no court of law can prevent the trustee from holding the office, except for the breach of trust or good cause dependent upon clear and lawful necessity.
The failure of author to appoint a trustee
The failure of author to name a trustee does not void a trust. The court appoints a trustee to administer the trust and orders the person having legal title to the property to convey it to the appointed trustee. If two or more trustees are appointed, they always hold the title to trust property in Joint Tenancy with the Right of Survivorship. If one of the trustee dies, the surviving trustee inherits the entire interest, not just her proportionate share
Resignation by a trustee
A trustee cannot resign without the permission of the court unless the trust instrument so provides or unless all of the beneficiaries who are legally capable to do so consent to the resignation. The court usually permits the trustee to resign if continuing to serve will be an unreasonable burden for the trustee and the resignation will not be greatly detrimental to the trust.
Who can be a trustee
A corporation can act as a trustee
A corporation is capable of accepting the ownership of property with an obligation annexed to the ownership for the benefit of another which may be a class of persons, there can be no objection to a corporation acting as a trustee. This is a well-established proposition from the time of the decision of the Judicial Committee of the House of Lords in Salomon v. Salomon and Company Ltd which has been followed in India by the Supreme Court and it has held that a juristic person can carry on all human activities subject to such limitation as arise from its not being a natural person and the limitations imposed upon it activities by its own charter contained in the objects clause in the memorandum of association. A juristic person cannot marry and procreate, but it is certainly capable of owning property. It is also capable of owning property in its capacity as a trustee. Corporations carrying on the activity of becoming trustees and executors are not unknown. There can, therefore, be no objection to a corporation acting as a trustee provided its objects clause in the memorandum of association so permits. For example, a trust company is a bank that has been named by author of trust to act as trustee in managing a trust. A partnership can serve as a trustee if state law permits. An unincorporated association, such as a Labor Union or Social club, usually cannot serve as a trustee.
Alien can act as a trustee
An alien may be a trustee under English law. But in India the English law as to aliens is not applicable. Alien enemies residing in (British) India with the permission of the Governor General in Council and alien friends may sue in courts of British India, as if they were subjects of Her Majesty. But it is not competent to an alien enemy residing in British India , without such permission or residing in a foreign country to sue in any of such courts.
Married Women can act as a trustee
A married women may be a trustee.
Infant can act as a trustee
As a life convict is capable of holding property ,it follows that does not require the exercise of discretion and prudence. Thus an infant cannot exercise a discretionary trust for sale for he is not competent to contract. It has also been held that a minor is incompetent to be a trustee of a public trust.
Convict can act as a trustee
As a life convict is capable of holding property ,it follows that he may either be a trustee or a beneficiary.
Illegitimate can act as a trustee
In a decision of the Oudh Chief Court ,it was held that mere fact of the illegitimacy of a person is not necessarily a disqualification for his being appointed as a trustee ,when he is otherwise found to be fit.
Insolvent can act as a trustee
An insolvent is incapable of acting as a trustee.Firms who have been adjudicated insolvents are no longer under the Act fit to be trustee. They are liable to be removed from the office of trustee and fresh trustee should be appointed.
2.2 Beneficiary as trustee
There is no provision in the Trust Act that a cestui que trust shall not be appointed a trustee. He is not as such incapacitated from being, trustee for himself and other ; but as a general rule he is not altogether a fit person for the office in consequence of the probability of the conflict between his interest and his duty.
An executor is not a trustee of the property bequeathed by a testator which does not belong to him.
Every donor contributing at the time of creation of a trust does not necessarily become the founder of the trust and this will depend upon connected circumstances and subsequent conduct of the parties.
According to Sec 9 of Indian Trust Act 1886 “Every person capable of holding property may be a beneficiary. A proposed beneficiary may renounce his interest under the trust
by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim inconsistent therewith.” Every private trust must have a designated beneficiary or one so described that his identity can be learned when the trust is created or within the time limit of the Rule of Perpetuity, which is usually measured by the life of a person alive or conceived at the time the trust is created. This rule varies from state to state, is designed to prevent a person from tying up property in a trust for an unlimited number of years. A person or corporation legally capable of taking and holding legal title to property can be a beneficiary of a trust. Partnerships and unincorporated associations can also be beneficiaries. Unless restricted by law, aliens can also be beneficiaries.
Who can be termed as Beneficiaries
A class of persons can be named the beneficiary of a trust as long as the class is definite or definitely ascertainable. If property is left in trust for "children," the class is definite and the trust is valid. When a trust is designated for “family," the validity of the trust depends on whether the court construes the term to mean immediate family in which case the class is definite or all relations. If the latter is meant, the trust will fail because the class is indefinite. When an ascertainable class exists, a author may grant the trustee the right to select beneficiaries from that class. However, a trust created for the benefit of any person selected by the trustee is not enforceable.
If the author's designation of an individual beneficiary or a class of beneficiaries is so vague or indefinite that the individual or group cannot be determined with reasonable clarity, the trust will fail. The beneficiaries of a trust hold their equitable interest as tenants in common unless the trust instrument provides that they shall hold as joint tenants. For example, three beneficiaries each own an undivided one-third of the equitable title in the trust property. If they take as tenants in common, upon their deaths their heirs will inherit their proportionate shares. If, however, the author specified in the trust document that they are to take as joint tenants, then upon the death of one, the two beneficiaries will divide his share. Upon the death of one of the remaining two, the lone survivor will enjoy the complete benefits of the trust.
Categories of the Beneficiary of a Trust
There are two basic Trusts with regards to the exercises of the Beneficiaries' rights:
1. Beneficiaries of a Bare Trust (as known as a Simple Trust) is where the Beneficiary is entitled to take actual ownership and control of the Trust and has the right to the income and capital. The Trustees, in this case, act in accordance with the Beneficiaries' wishes.
2. Beneficiaries of an Express Trust are Trusts where by the Trustee is given additional duties and powers assigned in the Trust Deed. The Express Trust can be either an Inter Vivos Trust, which is a Trust created during the life of the Grantor, or the Express Trust can be a Testamentary Trust, which is a Trust enacted after the death of the Grantor (as known as the Will Trust).
As far as Trust is concerned, there are two main types of Beneficiaries:
1. Fixed Beneficiaries who simply have a fixed entitlement to the income and capital from the Grantor.
2. Discretionary Beneficiaries to whom the Trustees have discretionary and decision-making powers to the entitlements.
According to the law of England the sovereign may be a cestui que trust, and similarly in India the Government may be a beneficiary.
An unborn child cannot be said to be a “a person capable of holding property” within the meaning of this section and is therefore incapable of being a beneficiary.
In England a trust of lands cannot be limited to a corporation without a “license from the crown”.But since the Mortmain Acts do not apply to India , a corporation in India may be a censui que trust.
An alien also may be a cestui que trust.
Settler ad His wife
A trust was created for the benefit of the settler and his wife. Subsequent to the trust the marriage was dissolved and the wife remarried. It was held in that the wife forfeited the benefits under the trust.
From the above discussions on the doctrine and various case laws, it is evident that the state is not the owner of the natural resources in the country but a trustee who holds fiduciary relationship with the people. By accepting this task the government is expected to be loyal to the interests of its citizens and to discharge its duty with the interest of the citizens at heart and involve them in decision-making process concerning the management of natural resources in the country. The Indian Trusts Act 1882 deals with all the matters related to trusts, trustee and beneficiaries .According to section 10 of Indian Trusts Act 1882 states that “Every Person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.”Thus trustee holds a fiduciary position.
And according to Section-9 of Indian Trust Act 1886“Every person capable of holding property may be a beneficiary.”Thus a beneficiary can be a minor, or under a mental disability (in fact many trusts are created specifically for persons with those legal disadvantages). It is also possible to have trusts for unborn children, although the trusts must vest within the applicable perpetuity period. Thus after studying the concept in depth it has been clear the anyone capable of taking physical possession of or legal title of the property can be a trustee. And there is no limit to the number of trustees to hold the position in one trust
# Kalandar Batcha Sahib v. Jailani Saib AIR 1930 Mad 554.
# Khursaidi Begum v. Secretary of State,5 Pat 539.
# Beach’s commentaries on the Law of Trusts and Trustees.vol I chapter III pg 30 (1897).
# Available at http://www.encyclopedia.com/topic/trust.aspx visited on 5th July 2011.
# In Re Tempest ,(L.R. 1 Ch.487),31,1431.
# Available at http://law.jrank.org/pages/10920/Trust-Private-Trusts.html visited on 6th July 2011.
# Available at http://legal-dictionary.thefreedictionary.com/trust visited on 6th July 2011.
# Salomon v A Salomon & Co Ltd  AC 2
# Mrs. Bacha F. Guzdar v. Commissioner of Income-tax State Trading Corporation of India Ltd. v. Commercial Tax Officer 1955 AIR 740, 1955 SCR (1) 876 . and Tata Engineering and Locomotive Co. Ltd. v. State of Bihar 1965 AIR 40, 1964 SCR (6) 885
# Available at http://statutelaw.blogspot.com/2011/03/53-company-can-be-trustee.html visited on 6th July 2011.
# Available at http://www.encyclopedia.com/topic/trust.aspx visited on 6th July 2011.
# S.K. Savaria ,Commentries on India Trusts Act,(Delhi:Universal Law Publishing House)2009 p.217
# Byreddi Narracca v.Chinna Narayana Reddi ,ILR 6 Mad 331.
# MAulvi Saadat Husain v. Mohammed Haider ,AIR 1937 Oudh 103.
# Ramanathan Chettiar v. Kanta Kasabapathy Chettiar ,94 IC 955.
# Krishanjee Bhat v. Sadasiva Tawker ,99 IC 713.
# Ashidbhai v. Abdulla,31 Bom 271.
# Kolicheria Seshacharlu v. Vidwan Ramanujacharulu, AIR 1937 Mad 789.
# S.K. Savaria ,Commentries on India Trusts Act,(Delhi:Universal Law Publishing House)2009 p.219.
# Rule against perpetuity(Sec 114 Indian Succession Act)-No bequest is valid whereby the vesting of the thing bequeathed may be delayed beyond the life-time ofone or more persons living at the testator's death and the minority ofsome person who shall be in existence at the expiration of thatperiod, and to whom, if he attains full age, the thing bequeathed isto belong.
# a person born in a foreign country is an alien
# Available at http://www.encyclopedia.com/topic/trust.aspx visited on 16th July 2011
# A legal term referring to a transfer or gift made during one's lifetime, as opposed to a testamentary transfer.
# the party who transfers title in real property to another.
# Available at http://www.ultratrust.com/beneficiary-of-trust.html visited on 16th July 2011
# the party who transfers title in real property to another.
# Available at http://www.ultratrust.com/beneficiary-of-trust.html visited on 26th July 2011
# Lewin, 12th Edn p.45.
# Mayor of Lyons v. East India Co.,1 MIA 175.
# T.C.Hornby v. E.T. Farmer ,AIR 1960 Cal 36.
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| Posted by Dr Z Nadeem on September 14, 2014
We would like to establish a charitable trust with family members as
trustees, for helping the mentally ill pts. Some of the family members
are living abroad, but are under the age of 20, studying in college.
They want to help in the organisational matters mostly and not
financial. They are all foreign passport holders with Overseas
Citizenship of India. Can they be nominated as trustees? Many thanks for
your kind reply
| Posted by Srikant Jiv. on May 27, 2012
the article gives some insight.However I am looking at the tenure-ship of a trustee; can a trustee be life-long in a public charitable trust ?
Investors are the backbone of the securities market. They not only determine the level of activity in the securities market but also the level of activity in the economy. The growth in the numbers of investors in India is encouraging.
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