MAHARSHI DAYANAND UNIVERSITY

Faculty of law

Topic - TRUST AND ITS TYPES

SUBMITTED T0 SUBMITTED BY
Dr. Surender Dahiya Mr. Tushar Mehta

Roll No. – 921

B.A L.L.B (4th year)

Semester – 8th
A device by which one person holds property for the benefit of another
person. A trust imposes a personal equitable obligation upon a person
(trustee) to deal with property for the benefit of another person or class of
persons (beneficiary) or for the advancement of certain purposes, private or
charitable. There must be sufficient certainty of intention, object, and
subject matter.The modern trust arose from the medieval 'use’, obtaining its
nature from the simultaneous holding of equitable (or beneficial) and legal
interests in property. There are said to be three necessary elements of a trust:
a trustee; the trust fund or trust property; and a beneficiary or object,
particularly if the trust is for a charitable purpose.It can be created during a
person's lifetime and survive the person's death. A trust can also be created
by a will and formed after death. Once assets are put into the trust they
belong to the trust itself, not the trustee, and remain subject to the rules and
instructions of the trust contract. Most basically, a trust is a right in property,
which is held in a fiduciary relationship by one party for the benefit of
another. The trustee is the one who holds title to the trust property, and the
beneficiary is the person who receives the benefits of the trust. While there
are a number of different types of trusts, the basic types are revocable and
irrevocable.

Features of Trust
Trust is an obligation which binds a person (or persons) to deal with property for the
benefit of beneficiaries or for a charitable purpose in accordance with the terms of
the trust. A trust can come into existence in any manner, by an instrument in writing
(including a will), by a unilateral declaration, by operation of law and also by oral
declaration. However, when a trust is created orally, the law requires that there is
sufficient evidence of the settlor’s intention to create a trust. In the absence of
unequivocal evidence of this intention the law will presume that the person intended
mandate or deposit and not the creation to a trust.

A trust is managed by one entity (person or organization) for the benefit of another,
although the managing entity owns the trust. A trust has the following characteristics:

• Author - All trusts have a grantor, sometimes called a settler or trustor. This
is the person who creates the trust and has the legal capacity to transfer
property.

• Trustee - The trustee can be any individual or organization that can take title
to property on behalf of a beneficiary. The trustee is responsible for managing
the property according to the rules outlined in the trust document, and must
do so in the best interests of the beneficiary. This person may be the grantor,
the spouse or adult child of the trust, or a third party. It is important to note
that the trustee must be prepared to be held accountable to the grantor, the
beneficiaries, or both.
• Beneficiary - The beneficiary is the party or parties benefiting from the trust.
The beneficiary or beneficiaries are not required to have the same interests in
the trust property. For example, the trust may provide one-third of the corpus
to one beneficiary and the balance of the corpus to another. The beneficiaries
do not have to be declared at the time the trust is created; they can be named
later.
• Property - Property is the asset that gets placed in the trust, and it is
sometimes called the principal or the corpus. Property can be any type of asset
and can be transferred to the trust during the lifetime of the grantor (living
trust or inter-vivos) or under the will of the grantor after death (testamentary
 trust). Property can include assets such as money, securities, real estate,
jewelry, etc.
• Revocable and Irrevocable - Depending on the language used to create the
trust; a trust can be revocable or irrevocable, also called modifiable or
nonmodifiable. The difference here is that for a revocable trust, the grantor
remains in control, whereas the grantor loses control of the property after it
becomes irrevocable. Living trusts may be revocable or irrevocable.
• Funding - A trust may be fully or partially funded by the grantor during their
lifetime or after the grantor's death.

Usage
• There are many different uses of a trust, whether it be to manage the trustor's
assets during life or after death, or provide a less-taxed, easier way to endow
estates to the beneficiary(ies). Depending on the terms of the particular
agreement, a trust can also provide a way for trustors or grantors to benefit
during their lifetime as well.

• Additionally, trusts are often used to manage property, assets, or estates being
held for a minor or person incapable of being financially accountable until that
person be deemed able to manage the assets themselves.

Benefits
• While there are many different kinds of trusts with unique features and
benefits for each, some of the common benefits of a trust include reduced
estate taxes, allocation of assets into the desired hands, avoiding court fees
and probate, protection from creditors, or even protection of assets among
family members themselves (for conflicts or underage recipients).

• Additionally, trusts can be used for privacy (to keep wills private) or estate
planning. Still, one of the main benefits of setting up a trust remains the
avoidance of high estate taxes or gift taxes.

CREATION OF TRUST
The elements of valid trust are presented in section-6. Act defines how the author could
create the trust, assign trustees and give them his monetary assets to be controlled by
the trust. It may be express or implied. It includes-

• Intention of the author to create the trust.

• Purpose of the trust.
• The monetary asset is assigned for the benefit of the trustee.
• Gives control or transfer the trust property to the trustee which includes
intention of the author.
• Trustee can claim expenses & salary from the benefits from the trust of his
work.
 TYPES OF TRUST

Revocable Trusts
Revocable trusts are created during the lifetime of the trustmaker and can be altered,
changed, modified or revoked entirely. Often called a living trust, these are trusts in
which the trustmaker transfers the title of a property to a trust, serves as the initial
trustee, and has the ability to remove the property from the trust during his or her
lifetime. Revocable trusts are extremely helpful in avoiding probate. If ownership of
assets is transferred to a revocable trust during the lifetime of the trustmaker so that
it is owned by the trust at the time of the trustmaker's death, the assets will not be
subject to probate.

Although useful to avoid probate, a revocable trust is not an asset protection

technique as assets transferred to the trust during the trustmaker's lifetime will
remain available to the trustmaker's creditors. It does make it more somewhat more
difficult for creditors to access these assets since the creditor must petition a court
for an order to enable the creditor to get to the assets held in the trust. Typically, a
revocable trust evolves into an irrevocable trust upon the death of the trustmaker.

Irrevocable Trust

An irrevocable trust is one which cannot be altered, changed, modified or revoked

after its creation. Once a property is transferred to an irrevocable trust, no one,
including the trustmaker, can take the property out of the trust. It is possible to
purchase survivorship life insurance, the benefits of which can be held by an
irrevocable trust. This type of survivorship life insurance can be used for estate tax
planning purposes in large estates, however, survivorship life insurance held in an
irrevocable trust can have serious negative consequences.

Asset Protection Trust

An asset protection trust is a type of trust that is designed to protect a person's assets
from claims of future creditors. These types of trusts are often set up in countries
outside of the United States, although the assets do not always need to be transferred
to the foreign jurisdiction. The purpose of an asset protection trust is to insulate assets
from creditor attack. These trusts are normally structured so that they are irrevocable
for a term of years and so that the trustmaker is not a current beneficiary. An asset
protection trust is normally structured so that the undistributed assets of the trust are
returned to the trustmaker upon termination of the trust provided there is no current
risk of creditor attack, thus permitting the trustmaker to regain complete control over
the formerly protected assets.

Charitable Trust

Charitable trusts are trusts which benefit a particular charity or the public in general.
Typically charitable trusts are established as part of an estate plan to lower or avoid
imposition of estate and gift tax. A charitable remainder trust (CRT) funded during
the grantor's lifetime can be a financial planning tool, providing the trustmaker with
valuable lifetime benefits. In addition to the financial benefits, there is the intangible
benefit of rewarding the trustmaker's altruism as charities usually immediately honor
the donors who have named the charity as the beneficiary of a CRT.

Constructive Trust

A constructive trust is an implied trust. An implied trust is established by a court and

is determined from certain facts and circumstances. The court may decide that, even
though there was never a formal declaration of a trust, there was an intention on the
part of the property owner that the property be used for a particular purpose or go to
a particular person. While a person may take legal title to property, equitable
considerations sometimes require that the equitable title of such property really
belongs to someone else.

Special Needs Trust

A special needs trust is one which is set up for a person who receives government
benefits so as not to disqualify the beneficiary from such government benefits. This
is completely legal and permitted under the Social Security rules provided that the
disabled beneficiary cannot control the amount or the frequency of trust distributions
and cannot revoke the trust. Ordinarily when a person is receiving government
benefits, an inheritance or receipt of a gift could reduce or eliminate the person's
eligibility for such benefits.

By establishing a trust, which provides for luxuries or other benefits which otherwise
could not be obtained by the beneficiary, the beneficiary can obtain the benefits from
the trust without defeating his or her eligibility for government benefits. Usually, a
special needs trust has a provision which terminates the trust in the event that it could
be used to make the beneficiary ineligible for government benefits.

Special needs has a specific legal definition and is defined as the requisites for
maintaining the comfort and happiness of a disabled person, when such requisites
are not being provided by any public or private agency. Special needs can include
medical and dental expenses, equipment, education, treatment, rehabilitation, eye
glasses, transportation (including vehicle purchase), maintenance, insurance
(including payment of premiums of insurance on the life of the beneficiary), essential
dietary needs, spending money, electronic and computer equipment, vacations,
athletic contests, movies, trips, money with which to purchase gifts, payments for a
companion, and other items to enhance self-esteem. The list is quite extensive.

Parents of a disabled child can establish a special needs trust as part of their general
estate plan and not worry that their child will be prevented from receiving benefits
when they are not there to care for the child. Disabled persons who expect an
inheritance or other large sum of money may establish a special needs trust
themselves, provided that another person or entity is named as trustee.