A Trust Deed is a legal document that outlines the objectives, powers, and governance structure of a trust. Here we discuss all provisions of Trust Deed for a Charitable and Religious Trust.
1. What is Trust Deed?
The instrument by which the trust is declared is called the ‘instrument of trust’ or more popularly as the ‘trust-deed’.
2. Importance of the Drafting of Trust Deed
Drafting of the trust deed assumes utmost importance in view of the importance attached to it. As already stated, with effect from 1-4-1973, for claiming exemption under section 11, one of the conditions is that there should be an instrument creating the trust or establishing the institution. It is also provided that where the trust / institution has not been created/established under an instrument, there should be a document evidencing the creation of trust or the establishment of the institution.
3. Advantages of a Trust-Deed
Though a trust may be created orally in certain cases, however, a written trust-deed is always desirable, even if not required statutorily due to following reasons:
(a) a written trust-deed is a prima facie evidence to existence of a trust;
(b) it facilitates devolution of trust property to the trust;
(c) it clearly specifies the trust-objectives which enables to ascertain whether the trust is charitable or otherwise;
(d) a written trust-deed is essential for registration of conveyance of immovable property in the trust name;
(e) a written trust-deed is essential for obtaining registration under the Income-tax Act and claiming exemption from tax;
(f) a written trust-deed helps control, regulate and manage the working and operations of the trust;
(g) it lays down the procedure for appointment and removal of the trustee(s), his/their powers, rights and duties; and
h) it prescribes the course of action to be followed under any eventuality including determination of the trust.
4. Contents of a Trust Deed
A trust may be created by any language sufficient to show the intention and no technical words are necessary. A trust may even be created by the use of words which are primarily words of condition, but such words will constitute a trust only where the requisites of a trust arc present. Though the use of the word ‘trust’ is not needed to create a valid trust, the terms of the grant or will make it clear that an obligation is actually annexed to the ownership of the trust property.
A trust-deed, generally, incorporates the following:
(i) the name(s) of the author(s)/settlor(s) of the trust;
(ii) the name(s) of the trustee(s);
(iii) the name(s) if any, of the beneficiary/ies or whether it shall be the public at large;
(iv) the name by which the trust shall be known;
(v) the place where its principal and! or other offices shall be situate;
(vi) the property that shall devolve upon the trustee(s) under the trust for the benefit of the beneficiary/ies;
Note: In terms of section 21 of the Indian Registration Act, a deed of trust relating to immovable property, must for the purposes of registration, contain a description of the property sufficient to identify it
(vii) an intention to divest the trust property upon the trustee(s);
Note: intention. The intention should be expressed in unequivocal language and with a reasonable degree of certainty. Though no particular or technical words are necessary, yet the words used must be capable of definite meaning.
(viii) the objects of the trust;
(ix) the procedure for appointment, removal Or replacement of a trustee, their rights, duties and powers, etc;
(x) the rights and duties of the beneficiary/ies;
(xi) the mode and method of determination of the trust.
5. Practical Tips on Drafting of Trust Deed of A ‘Charitable & Religious Trust’
It is particularly necessary for the person drafting the deed to bear in mind the three certainties of a valid trust which are —
(i) certainty of declaration, i.e. imperative nature,
(ii) certainty of subject matter, i.e. property in which it acts,
(iii) certainty of object or beneficiary.
Any one drafting the deed of a public charitable trust has to bear in his mind several enactments, particularly, the Indian Trusts Act, 1882, any local / state enactment relating to trusts, like the Bombay Public Trusts Act, 1950 for the State of Maharashtra and the Income Tax Act, 1961. He should also keep in mind the ratios of the various judicial pronouncements dealing with the scope of “charitable purpose” and deciding whether a particular purpose is charitable, interpretation of the particular objects clauses of the trust deed to decide whether the same is charitable or not.
Here are a few tips:
- Express words for creation of trust are needed. Intention to create a trust should be clearly spelt out. In order to find out whether the relevant clauses of a trust deed create a public charitable trust or not one has to go by the express words employed by the trust deed. For finding out the real intention of the settlor, the words used in the deed would be the real vehicle of thought of the settlor expressing his intention in cold print.
- There should be sufficient clarity as to the working of the trust and detailed provisions should be made therefor so that there is no ambiguity.
- For construction of deed it must be read as a whole. It is a well settled rule of interpretation that the intention of the settlor must be gathered from the settlement as a whole and no particular clause should be construed in isolation for the intention of the author of the settlement. It is to be found not in one part of the settlement or in the other but in the entire deed and that intention can best be gathered by viewing a particular part of the settlement, not detached from its context in the settlement, but in connection with its whole context.
- What if several parts of the deed may be held to be invalid? The invalidity of a part of the trust deed does not invalidate the remainder where the valid portion is independent and severable from the invalid portion. Similarly, the invalidity of the deed of gift in respect of one item cannot affect its validity in respect of another.
- For correct interpretation of the deed, substance of the matter, rather than precise language is relevant. If, upon scrutiny of all the relevant provisions of the indenture of trust, it appears that a valid trust as contemplated by the Indian Trusts Act was created, then instead of giving too much importance to want of precise language, the substance of the matter should be looked at.
- Binding nature of the Trust Deed. The terms of the trust deed are binding on trustees and any departure by him from them is breach of the trust which the court is competent to restrain.
- Suggestion to provide proper safeguard. With a view to providing proper safeguard, it is suggested that the instrument of trust or institution created or established should contain, inter alia, the following clauses —
i. “ Nothing contained in this deed shall be deemed to authorize the trustees to do any act which may in any way be construed as violative or contrary to the provisions of sections 2(15), 10(23 B), 10(23C), 11, 12, 12A, 12AA, 13 and/or 800 ofthe Income Tax Act, 1961 and/or statutory modifications thereof and all activities of the trust shall be carried out with a view to benefiting the public at large, without any profit motive and in accordance with the provisions of the Income Tax Act or any statutory modification thereof.
ii. The trust is hereby expressly declared to be a public charitable trust and all the provisions of this deed are to be construed accordingly. “
6. Sample of Trust Deed for a Charitable and Religious Trust
Here is a sample trust deed for a charitable and religious trust:
THIS DEED OF TRUST made on [Date of Execution] BETWEEN [Name of Trustees], [Address of Trustees] (hereinafter referred to as the “Trustees”) of the FIRST PART, and [Name of Beneficiaries], [Address of Beneficiaries] (hereinafter referred to as the “Beneficiaries”) of the SECOND PART, and [Name of Settlor], [Address of Settlor] (hereinafter referred to as the “Settlor”) of the THIRD PART.
WHEREAS the Settlor has settled a sum of [Amount] (Rupees [Amount in Words]) for the establishment of a Charitable & Religious Trust (hereinafter referred to as the “Trust”).
AND WHEREAS the Trustees have agreed to act as the trustees of the Trust and to hold the Trust Fund and its income upon the trusts and subject to the powers and provisions hereinafter declared and contained.
NOW THIS DEED WITNESSETH as follows:
NAME: The name of the trust shall be [Name of the Trust] (hereinafter referred to as the “Trust”).
OBJECTIVES: The objectives of the Trust shall be:
(i) To establish, maintain and run charitable and religious institutions, including but not limited to hospitals, schools, temples, gurudwaras, mosques, and churches.
(ii) To provide relief to the poor, sick, and needy, irrespective of caste, creed, or religion.
(iii) To promote education, cultural activities, and social welfare programs for the benefit of the community.
(iv) To undertake any other charitable or religious activity as may be deemed fit by the Trustees.
POWERS OF THE TRUSTEES: The Trustees shall have the following powers:
(i) To accept donations, grants, and gifts in cash or kind from any person or institution for the purpose of carrying out the objectives of the Trust.
(ii) To invest the Trust Fund in such securities and properties as they may deem fit.
(iii) To sell, exchange, or otherwise dispose of any property or investment forming part of the Trust Fund.
(iv) To borrow money for the purposes of the Trust.
(v) To appoint agents, employees, and professional advisors as may be necessary for the proper management of the Trust.
(vi) To do all such acts and things as may be incidental or conducive to the attainment of the objectives of the Trust.
GOVERNANCE: The Trust shall be governed by the Trustees, who shall be not less than [Number of Trustees] and not more than [Number of Trustees] in number. The Trustees shall hold office for a period of [Number of Years] years, and shall be eligible for reappointment. Any casual vacancy in the office of a Trustee may be filled by the remaining Trustees.
BENEFICIARIES: The Beneficiaries of the Trust shall be such persons or institutions as may be determined by the Trustees from time to time.
DISSOLUTION: In the event of the dissolution of the Trust, the assets of the Trust shall be distributed to such charitable or religious institution or institutions as may be decided by the Trustees.
IN WITNESS WHEREOF the parties have executed this deed on the date and year first above written.
Signed and Delivered by the Settlor
[Name of Settlor]
Signed and Delivered by the Trustees
[Name of Trustees]
Signed and Delivered by the Beneficiaries
[Name of Beneficiaries]