LEGAL CHAT
An overview of trust property
R.L. NARAYANAN
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A Trust cannot be constituted in a fraudulent manner or to defeat the rights of certain persons claiming interest in the property
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It is difficult to define the word "Trust" as used in law. The Indian Trusts Act, 1882 defines trusts as 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. Even this definition does not capture the essence of the term. However, it is easier to describe what a trust is and understand the same.
An operational Trust has at least four ingredients. One is the "Author of the Trust" who constitutes the Trust. He reposes confidence or trust in one or more persons to execute the objects of the Trust. The persons in whom the confidence is reposed are the "Trustees". The person for whose benefit the Trust is created is a "beneficiary". The initial contribution for such purpose is the "Corpus" of the Trust. The Trust may or may not have immovable properties.
In the event that you are dealing with a Trust property or proposing to purchase a property from a Trust, you have to first check out whether it is a Private or a Public Trust or others like religious Trusts. Depending on the type of Trust, the approach to the deal or purchase as the case may be, will vary.
One of the ways of finding out whether a Trust is a Private or a Public Trust is to see what are the objects and who are the beneficiaries under the Trust as disclosed by the Trust Deed. If the beneficiaries are identifiable, then it is most likely that the Trust is a Private Trust. If specific beneficiaries are not identifiable and are public at large or sections or class of public, then the same may be a Public Trust.
Bequests
This determination is very critical to dealing with the properties of a Trust. The next factor is to see as to how the property has been acquired by the Trust. The Trust can acquire properties by bequests, that is, testamentary dispositions made by persons by a Will; it can acquire properties by purchase or other modes of conveyance. Frequently, properties are also endowed or orally transferred to the Trust. Separate declarations are made confirming the transfer. Though there may not be any registered document, the method of bringing in property to the Trust by a valid endowment or oral transfer is valid. This has to be ascertained from the documents concerned.
A distinction is to be made on how the property is brought in and on the constitution of the Trust. As per the Indian Trusts Act, 1882, a Trust in relation to immovable property has to be constituted by a non-testamentary instrument in writing signed by the Author of the Trust or the Trustee and registered.
The Will of the Author of the Trust or the Trustee can also constitute it. Insofar as movable properties are concerned, a Declaration of Trust has to be made and ownership of the property transferred to the Trustee.
A Trust cannot be constituted in a fraudulent manner or to defeat the rights of certain persons claiming interest in the property.
You also have to check up as to whether there is a complete divestment of right, title and interest of the Author of the Trust or the Donor in respect of the property concerned. This has to be ascertained from the documents concerned.
These could include declarations, tax payment records, other deeds or documents evidencing the dealings of the Trust.
Court permission required
Insofar as the power of sale of Trust property is concerned, especially in Public Trust, it is the deed, which governs the same.
There should be a clear provision in the Sale Deed enabling the Trustees to deal with and sell the Trust property. If this provision is not clearly found in the Trust Deed, then permission from competent court is required for transacting the sale. This permission has to be obtained under different provisions depending on whether the Trust is a Private or a Public Trust.
Any direction contained in the relevant Trust Deed for effecting the sale has to be strictly adhered to. In the event of Public Trust or Charities, permission from the Income Tax Department may be required depending on the facts and circumstances.
The Trust must be able to give you the title deeds and deliver vacant and peaceful possession of the property, unless otherwise agreed. The persons signing on behalf of the Trust should be empowered under the Trust Deed or as per directions of court to sign the same.
The Sale Deed or Conveyance has to be stamped and registered in the usual course.
Any litigation pending against the Trust or relating to the Trust should not have the effect of affecting the transfer of property.
The sale of the Trust property should have been made during the term of the Trust. A Public or a Charitable Trust is, however, irrevocable and is designed to have perpetual existence, unless terminated by an order of court.
In certain Public and Charitable Trusts, the competent court can frame a scheme and the property has to be dealt with in accordance with the directions or provisions of the said scheme. If authorisation is required from the Board of Trustees or any other formality has to be fulfilled, then the same has to be complied with.
Sale of properties by Trusts, which are basically educational institutions, or religious trusts or Wakfs is governed by different procedures. It is best to obtain competent professional advice on various aspects of the purchase, especially, the necessity of approaching the court for obtaining suitable orders or electing to purchase the property based on the terms and directions contained in the Trust Deed.
The author is a partner, Rank Associates, Chennai.
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