In this blog post, Amrita Dasgupta, a Final Year, B.A.LL.B. student at South Calcutta Law College, University of Calcutta and Diploma in Entrepreneurship Administration and Business Laws by NUJS describes the dissolution procedure for a private trust. 

 

Unlike a public trust or a private charitable trust, a private trust is defined under Section 3 of the Indian Trust Act, 1882. It 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.[1]

Private trust confers the right of ownership to the trustee for the benefit of a particular class of person or any specific person, and not for public at large. For example, ‘X’ transfers a certain property to ‘Y’ and tells that the profit arising out of it should be spent for ‘C’s education. Here, X is the author of the trust or settlor, Y is the trustee, C is the beneficiary, and the corpus or the subject matter transferred is the trust property. The beneficiary is the equitable owner after the property is transferred to the trustee.

 

Essentials of Private Trust/Conditions for Creation of Private Trust

• Private trust should be lawful, i.e., it should not be fraudulent, opposed to public policy, involves injury to another person or is opposed to the law. For example, if A bequeaths his property to B and tells that the profit arising out of the property should be given for C’s gambling business; the trust is void as it is unlawful.
• The trust property must be in existence and must be explicit.
• The author of the trust must not be in control of the trust property after conferring it to the trustee.
• The trustee must not use the trust property for his benefits, but for the specified beneficiary (ies).
• The intention of the author of the trust must be absolute and unambiguous, and it shall be properly conveyed to the trustee by will or by a written instrument or orally. In the case of immovable property, a non-testamentary instrument must be signed by the settlor to make it a valid trust and in the case of movable property; the transfer of the property should be made to create trust.
• The beneficiary must be specified properly.
• The purpose for which the trust is created must be certain.
• If a part of the trust is lawful and the other part is unlawful, it shall be considered unlawful as a whole.

If these conditions are not fulfilled, no trust is created.

 

Dissolution of Private Trust

A private trust created may either be inter vivos or ambulatory (revocable). A private trust may get dissolved or extinguished on certain grounds:

• When the purpose of the trust is complete[2]. For example, A conferred a property on B and told him to use the trust-property for C’s marriage. Then after C’s marriage, the purpose of the creation of trust ends, and thus the trust gets dissolved.
• If a certain period is mentioned in the trust instrument, then trust shall end after the expiry of such period.
• If the property is not used for the purpose for which trust is made. If A gives property to B for the purpose of C’s education, but the property is used as a capital for business, then the settlor may dissolve the trust.
• If the purpose becomes unlawful[3] after the introduction of a new legislation.
• If the trust property is destroyed[4], and
• When the trust is expressly revoked by the settlor[5].

The trust which has been created inter vivos cannot be revoked unless it was declared revocable in the trust instrument or will when the trust was created. No trust that is wholly constituted can be modified or revoked by the settlor. The conditions on the basis of which trust may be revoked are:

• If the beneficiaries are sui juris,e., legally competent to contract, then by their consent trust can be revoked.
• If it was expressly declared in the non-testamentary instrument or orally that the trust may be revoked by the author of the trust.
• In the case of the payment of debts, the author of the trust property may revoke the trust at any time before it is conveyed to the creditors.
• If the settlor feels that there will be no certainty of trust property, then he can revoke the trust. For example, the husband transferred property as a trust to his wife for her lifetime, and before her death, she will appoint two persons or their “heirs at law” as the beneficiaries of the trust. The settlor and his wife later revoked the trust as it will not constitute as a trust after their death, because what will remain as a trust property is not certain.[6] This is similar to Bhaidas v. Bai Gulam Case[7].
• The trust may be revoked if it was obtained by undue influence or any fraudulent activity.
• If the execution of the trust is under a fundamental mistake or misapprehension as to its effect[8].
• The author of the trust may also revoke illusory trusts[9].

In the case of an irrevocable trust, it cannot be done without the consent of the settlor and the beneficiary. If the settlor is not alive, then the consent of the beneficiary is needed, and it should be done by the intervention of the court.

In the case where the private trust is created through will, then the trust may be revocable or may be modified at any time during the lifetime of the author of the trust. After the death of the settlor, the trust cannot be revoked by anyone.

 

Conclusion

In Trustees of Gordhandas Govindram Family Trust, Bombay v. C.I.T., Bombay[10], the Supreme Court held that when the primary purpose of the settlor is to benefit his family and not the public as a whole, then it is considered to be a private trust and not a public trust or a charitable trust.

 

[divider]

References:

• http://thismatter.com/money/wills-estates-trusts/trust-modification-termination.htm

[1] Section 3 of the Indian Trust Act

[2] Section 77(a)

[3] Section 77(b)

[4] Section 77(c)

[5] Section 78 and 79 of the Indian Trust Act

[6] Botzum v. Havana National Bank

[7] 1921

[8] Strauss v. Sutro, 1948; Bullock v. Lloyds Bank Ltd., 1955; Equity, Trusts and Specific Relief by B.M.Gandhi

[9] Equity, Trusts and Specific Relief by B.M. Gandhi

[10] 28^th November 1972; Hedge J., K.S. J.