In this blog post, Ranjeet Yadav, an Ex-Commissioner of Railway Safety with the Indian Railways and a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the procedure to dissolve a private trust.
Private Trusts are usually created for the benefits of identified persons, who could be one or more ascertainable individuals.
A Private Trust can be dissolved as per the present laws under the following circumstances: –
- By the consent of all the beneficiaries: The beneficiaries sign the documents of the release of the said trust by relinquishing their rights.
- By the settlor: The settlor, that is, the person who had initially transferred property and created a trust provided there were powers of revocation reserved by him as per the trust deed. The settlor may exercise the power of revocation and revoke such trust by way of registered deed of revocation.
- The passage of time: The period of time for which a trust is to operate is usually expressly prescribed in the trust instrument. A settlor can state that the trust shall last until the beneficiary reaches a particular age. When this period expires, the trust gets dissolved.
- Due to particular events: The beneficiaries may end the trust as a result of particular events occurring, e.g., the subsequent failure or satisfaction of the purposes of the trust or cessation of particular circumstances for which the trust was created to provide.
- Due to avoidance of transactions: It may be set aside under the provisions relating to the avoidance of transactions at an undervalue or to dispositions in fraud of creditors on the ground that the disposition was induced by fraud, duress, undue influence or mistake.
- Exercise of power of advancement: The trustees exercising a power of advancement or a power of appointment to terminate the trust either in whole or part.
- fulfillment of purpose: When the purpose is completely fulfilled, e.g., a settlor can stipulate that the trust shall last until the marriage of the beneficiary. In such case, the trust will get dissolved once the marriage gets solemnised.
- Destruction of the trust-property: When the fulfilment of its purpose becomes impossible by the destruction of the trust-property or otherwise.
- Unlawful purpose: When its purpose becomes unlawful. As per Section 4 of the Indian Trust Act, 1882, the purpose of the trust is unlawful if it is:
- a) Forbidden by law,
- b) Is of such a nature that, if permitted, it would defeat the provisions of any law,
- c) Is fraudulent,
- d) Involves or implies injury to the person or property of another,
- e) The court regards it as immoral or opposed to public policy. Thus, if the purpose of a trust becomes unlawful, according to provisions of Section 4 the trust gets extinguished.
- Dissolution of trust: Where the trust is for the payment of the debts of the author of the trust and has not been communicated to the creditors at the pleasure of the author of the trust, the author can dissolve the trust, e.g., A conveys some property to B in trust to sell the same and pay out of the proceeds the claims of A’s creditors. If no communication has been made to the creditors, A may revoke the trust.
On the dissolution of the trust under one or more of the aforesaid circumstances, the ‘Trust Dissolution Deed’ should be made and be registered.