INDIAN TRUSTS ACT, 1882
Creation of Trusts
[Express Private Trust]
~ Supraja N S
Parties to a trust (S. 3 – interpretation clause)
• A “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in
and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and
the owner
• author of the trust: the person who reposes or declares the confidence
• trustee: the person who accepts the confidence
• beneficiary: the person for whose benefit the confidence is accepted
• trust-property: the subject-matter of the trust
• beneficial interest: beneficiary’s right against the trustee as owner of the trust-property
• instrument of trust: instrument by which the trust is declared
• breach of trust: a breach of any duty imposed on a trustee
• registered: registered under the law for the registration of documents for the time being in force
• notice: a person is said to have “notice” of a fact either when he actually knows that fact or when, he would
have known it but for his gross negligence, or when information of the fact is given to or obtained by his
agent, under the circumstances mentioned in the Indian Contract Act, 1872, S.229
Emphasis on obligation – trust is an obligation annexed to the ownership of property for the
benefit of another – without such obligation, no trust!
No double ownership – beneficiary has no interest in the trust property – but has a right against
the trustee who is the owner of the property
For constitution of an express private trust, there must be 3 parties:
i. Author of the trust, called a settlor
ii. The trustee
iii. The cestui que trust or the beneficiary
Who may create trusts (S. 7)
• A trust may be created—
(a) by every person competent to contracts, and
(b) with the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor; but subject in
each case to the law for the time being in force as to the circumstances and extent in and to which the author of the
trust may dispose of the trust property.
Competency – full age, legal capacity, sound mind and is competent to contract (S. 11 of Indian
Contract Act)
A minor or a person on behalf of a minor can create a trust – subject to the approval and
permission of the High Court or a District Court
Who may be a beneficiary (S. 9)
• Every person capable of holding property may be a beneficiary. (…..)
Even a minor or a child in mother’s womb may be a beneficiary
In case of unborn child – rule of perpetuities should not be broken (S. 14 of Transfer of Property
Act)
Who may be a trustee (Ss. 10 & 60)
• S. 10 - 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. (…..)
• S. 60 - The beneficiary has a right (subject to the provisions of the instrument of trust) that the
trust-property shall be properly protected and held and administered by proper persons and by
a proper number of such persons.
Explanation I.—The following are not proper persons within the meaning of this section:— A person domiciled
abroad: an alien enemy: a person having an interest inconsistent with that of the beneficiary: a person in insolvent
circumstances; and, unless the personal law of the beneficiary allows otherwise, a married woman and a minor.
Explanation II.—When the administration of the trust involves the receipt and custody of money, the number of
trustees should be two at least.
The following are not proper persons:
i. A person domiciled abroad
ii. an alien enemy
iii. a person having an interest inconsistent with that of the beneficiary
iv. a person in insolvent circumstances
v. unless the personal law of the beneficiary allows otherwise, a married woman and a minor
A minor can be a trustee –
where the question of using discretion arises – considered not competent to become a trustee
If beneficiaries object to him being a trustee and court does not consider him to be a proper person – cannot be a
trustee
If personal law of the beneficiary allows a minor or a woman to be a trustee, this section has no
effect ( Hindu and Muslim laws allow a minor to be a trustee)
That a married woman is not a proper person – no longer acceptable
When is a trust created (S. 6 – creation of a trust)
• Subject to the provisions of S. 5, a trust is created when the author of the trust indicates with
reasonable certainty by any words or acts
(a) an intention on his part to create thereby a trust,
(b) the purpose of the trust,
(c) the beneficiary, and
(d) the trust-property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee)
transfers the trust-property to the trustee.
• S. 5: Trust of immoveable property — No trust in relation to immoveable property is valid unless
declared by a non-testamentary instrument in writing signed by the author of the trust or the
trustee and registered, or by the will of the author of the trust or of the trustee.
• Trust of moveable property — No trust in relation to moveable property is valid unless declared
as aforesaid, or unless the ownership of the property is transferred to the trustee. (…..)
Rule of Three Certainties
For validation of a Trust, 3 conditions must be fulfilled which are known as "THE THREE
CERTAINTIES”. If any of these conditions do not appear, then the trust will be void ab initio.
• The proposition of the three certainties is taken from the dictum of Lord Langdale in the leading
case Knight v. Knight [1840]:
"As a general rule, it has been laid down, that when property is given absolutely to any person, and the same person is,
by the giver who has power to command, recommend, or entreated or wished, to dispose of that property in favour of
another, the recommendation, entreaty or wish shall be held to create a trust. First if the words were so used, that upon
the whole, they ought to be construed as an imperative; secondly, if the subject of the recommendation or wish is
certain; and thirdly, if the objects or persons intended to have benefit of the recommendation or wish also be certain.“
So, for a trust to be valid there must be:
i. certainty of words or Intention
ii. certainty of subject
iii. certainty of persons or objects.
i. Certainty of intention
Law on this point is the same in England and in India
Key test to find whether intention is present – is to consider whether the creator of the trust
wanted someone to be under a duty to hold property for the benefit of another person
Words in the trust must be so used that on the whole they ought to be construed as imperative
• Snell – “a trust may well be created, although there may be an absence of any expression in
terms of importing confidence.”
If on a whole, it can be gathered that a trust was intended, no particular form of expression is
necessary
The word ‘trust’ may not be used and yet a trust may exist because the court looks to the intent
rather than the form
But if the ‘intention’ in the declaration of the trust is lacking, no trust can arise and the transferee
takes the property beneficially for himself
Court may consider a precatory trust to have been created, on an assumption that there is
certainty of subject matter and object, and if it considers on examination of the instrument as a
whole that the precatory words used impose an obligation
The courts will consider the whole context of the case to determine whether a trust has been
created – this is to avoid the frustration of the testator or settlor’s wishes.
If there is insufficient certainty of intention then the gift takes effect as an absolute gift and no
trust will be held to exist.
Jones v Lock [1865]
• A father received a cheque for £900 and said he would ‘put it away for’ his son.
• This was held not to show sufficient intent to create an express trust. Lord Cranworth noted that it would be
dangerous ‘if loose conversations of this sort’ declared a trust.
Lambe v Eames [1871]
• The Testator had left his estate to his widow, "to be at her disposal in any way she may think best, for the benefit of
herself and her family"
• The Court held that the gift was an absolute gift to the widow and not a trust.
Re Adams and The Kensington Vestry [1884]
• The testator left his estate "unto and to the absolute use of my wife…… in full confidence that she will do what is right
as to the disposal thereof between my children, either in her lifetime or by will after her decease".
• The Court of Appeal held the gift to be absolute
ii. Certainty of subject-matter
In England – ‘any property’ which is alienable can be the subject-matter of a trust – unless public
policy or statue prohibits it
‘any property’ – all property that is legal, equitable, real, personal, home, abroad in possession or
action whether remainder, reversion or an expectancy
In India:
• S. 8: Subject of trust — The subject-matter of a trust must be property transferable to the
beneficiary
• S. 5: Trust of immoveable property — No trust in relation to immoveable property is valid unless
declared by a non-testamentary instrument in writing signed by the author of the trust or the
trustee and registered, or by the will of the author of the trust or of the trustee.
• Trust of moveable property — No trust in relation to moveable property is valid unless declared
as aforesaid, or unless the ownership of the property is transferred to the trustee. (…..)
Property – movable or immovable that is lawfully transferable – can be subject-matter of a trust
With regard to interest:
But a mere beneficial interest cannot be the subject-matter in India
A trust of ‘mere expectancy’ (spes successionis) which is not transferable under S.6 of Transfer of Property Act (what
may be transferred) is not possible
A chance of being an heir-apparent to succeed a contingent interest of a pay of a public office,
pension of a government servant or any other interest restricted to enjoyment personally, cannot
be a subject of trust
If the owner of a property does not fully divest himself of the property, a trust is not said to be
created
With regard to property:
Subject-matter of the trust must be certain or ‘bulk’ of the property must be definite - because
‘bulk’ cannot be defined and is not sufficient to constitute a certain subject matter
But anything that is ‘left’ of the testator’s estate is considered to be sufficiently clear
Also, the property must be able to be identified
If there is an absence of certainty of subject matter, the consequences will depend on the kind of
uncertainty:
i. If settlor leaves all properties to trustees but keeps it uncertain as to which house is to go to beneficiary or to
which beneficiary, trust fails – becomes a resulting trust OR if some part of the interest of beneficiary is certain and
some other part uncertain, uncertain part fails – principal beneficiary takes the whole. This can be cured by maxim
‘equality is equity’.
ii. Settlor gives trustee a discretion to apply the trust fund among a certain class of persons is no uncertainty
iii. One beneficiary is given the whole of the beneficial interest and others an uncertain part of it – uncertain part fails
and the principal beneficiary takes the whole
Sprange v Barnard [1789]
• The testatrix left £300 worth of annuities to her husband ‘for his sole use; and at his death, the remaining part of
what is left, that he does not want for his own wants and use to be divided between’ a number of beneficiaries.
• Held that no trust arose, and the husband took all the property beneficially. Making a gift was the dominant
intention, not to bind the husband with a trust.
Kumari Chandan v. Longa Bai [1998]
• The owner of a property executed a trust expressing a desire to construct a Dharmshala in order to perpetuate the
memories of himself and his family members. The executant however, did not divest himself of rights of the property
and transferred the same to the trustees.
• Held that the document cannot be said to have created a trust in present
iii. Certainty of object
Morice v Bishop of Durham [1804]
• The Court of Appeal held that non-charitable purposes were void for want of objects. The court stated that without
certain objects, the trustees are not subjected to any obligations.
Certainty of objects or beneficiaries is necessary expect in a trust for the benefit of charity
Where a trust fails for uncertainty of object, the donee cannot take for his own benefit – a
resulting trust will arise
Illustrations u/s. 6 – creation of trust
a. A bequeaths certain property to B, “having the fullest confidence that he will dispose of it for
the benefit of C. This creates a trust so far as regards A and C.
b. A bequeaths certain property to B, “hoping he will continue it in the family”. This does not
create a trust, as the beneficiary is not indicated with reasonable certainty.
c. A bequeaths certain property to B, requesting him to distribute it amongst such members of
C’s family as B should think most deserving. This does not create a trust, for the beneficiaries
are not indicated with reasonable certainty.
d. A bequeaths certain property to B, desiring him to divide the bulk of it among C’s children.
This does not create a trust, for the trust-property is not indicated with sufficient certainty.
e. A bequeaths a shop and stock-in-trade to B, on condition that he pays A’s debts and a legacy
to C. This is a condition, not a trust for A’s creditors and C.
Lawful purpose and transfer of trust-property
S. 6 has 2 further essentials to the above said 3 certainties:
• the purpose of the trust
• transfers the trust-property to the trustee
• S. 4 - Lawful purpose: A trust may be created for any lawful purpose. The purpose of a trust is
lawful unless it is
(a) forbidden by law, or
(b) is of such a nature that, if permitted, it would defeat the provisions of any law, or
(c) is fraudulent, or
(d) involves or implies injury to the person or property of another, or
(e) the Court regards it as immoral or opposed to public policy.
Every trust of which the purpose is unlawful is void. And where a trust is created for two
purposes, of which one is lawful and the other unlawful, and the two purposes cannot be
separated, the whole trust is void.
The 2 essentials (purpose and transfer of property) absence will not stop a trust from coming into
existence nor will make a trust uncertain
With regard to purpose:
a trust that postpones enjoyment for indefinite period or prevents alienation forever breaching
rule against perpetuities – void
a trust that seeks to alter ordinary law of descent or succession or violating rules for valid
disposition of property (S.114 of ISA, S.14 of TPA) – void
A trust to defraud creditors or in restraint of marriage or for future illegitimate children – void;
but a trust for illegitimate child in existence – valid
If trust is directed for more than one purpose, all of which is unlawful – void; if some of them are
unlawful and this can be severed – lawful purpose will take effect
With regard to transfer of property:
When author himself is a trustee, no transfer arises – only change of status from owner to trustee
Where trust is incorporated into a will, it takes effect after the death of the settlor – property is
vested, no transfer
Will trust fail if property is not transferred?
It will fail in case of voluntary trusts
It will not fail in case of trust for value since settlor is compelled to transfer
Chambers v Chambers [1944]
• Mr. Chambers (a businessman and company) transferred a certain amount by book entries to his wife. His wife was
informed that the amount so transferred constituted a gift and she could not draw more than 10% of the capital in
any one year. On him transferring a certain amount from his wife’s account subsequently, it was held that there was
no trust for 3 reasons:
i. There was no declaration of trust by Mr. Chambers
ii. There was no parting with the property by Mr. Chambers
iii. There was no ascertained funds for the trust
Necessary formalities for creation of a trust
England- trust may be created without a deed, writing or formalities – word of mouth is necessary
After Statute of Frauds, 1677 – trust must be in writing and signed by the author
In India, formalities is laid down in S. 5:
Immovable property must be transferred, not just vested
Movable property must actually be transferred
Written, signed, registered
Will must comply with Indian Succession Act, 1925 (except where settlor is Mahomedan)
An uncertain or unregistered trust may be made perfect by 12 years adverse possession by
trustees action against them would be barred
These rules will not effectuate a fraud
Thank You
