What is the Meaning of Trust?

 

Trust is a legal arrangement in which one person (the Author/Settlor) transfers property or assets to another person or group of persons (the Trustee(s)), who then hold and manage that property for the benefit of a third party (the Beneficiary) or for a specific purpose, in accordance with the terms laid down by the settlor.

In simple terms: A trust is when someone hands over property or money to a trustworthy person/entity, with clear instructions on how it should be used or managed — not for the trustee's own benefit, but for someone else's benefit or for a specific cause (like charity).

Key parties involved:

Party	Role
Author/Settlor/Donor	The person who creates the trust and transfers property into it
Trustee(s)	The person(s) or entity entrusted with managing the trust property, as per the trust deed
Beneficiary	The person(s) or group for whose benefit the trust is created (can also be the general public, in case of charitable trusts)
Trust Property/Corpus	The asset(s) transferred into the trust (money, property, shares, etc.)

Key characteristics:

1.    Fiduciary relationship – The trustee holds a position of trust and must act in the best interest of the beneficiary, not for personal gain

2.    Governed by a Trust Deed – A legal document specifying the objective of the trust, powers/duties of trustees, beneficiaries, and how the trust property is to be managed and applied

3.    Separate legal identity (in many jurisdictions, for registered trusts) – Can own property, enter contracts, and be a party to legal proceedings

4.    No profit motive (typically, especially for charitable/public trusts) – Managed for the benefit of beneficiaries or a cause, not for the trustee's personal profit

5.    Perpetual existence (usually) – A trust, especially a charitable one, can continue indefinitely, governed by its trustees over generations

Types of Trusts:

Type	Meaning
Private Trust	Created for the benefit of specific individuals (e.g., family members)
Public/Charitable Trust	Created for the benefit of the public at large or a section of the public, for purposes like education, healthcare, religion, poverty relief
Living Trust	Created and takes effect during the settlor's lifetime
Testamentary Trust	Created through a will, taking effect after the settlor's death
Revocable Trust	Can be modified or cancelled by the settlor during their lifetime
Irrevocable Trust	Cannot be altered or cancelled once created

Common examples:

·         Charitable trusts running schools, hospitals, or orphanages

·         Religious trusts managing temples, churches, or mosques

·         Family trusts set up to manage and pass on wealth/property to family members, often for succession planning

·         Employee welfare trusts (e.g., gratuity trusts, provident fund trusts set up by companies)

Accounting for Trusts: Like other non-profit organisations, charitable/public trusts typically maintain:

·         Receipts and Payments Account

·         Income and Expenditure Account

·         Balance Sheet, showing the Trust Fund/Corpus instead of "Capital"

Trust vs. Partnership vs. Company (quick contrast):

	Trust	Partnership	Company
Purpose	Manage property for beneficiaries/cause	Run a business for profit, shared among partners	Run a business for profit, shared among shareholders
Ownership	Trustees hold property, don't "own" it beneficially	Partners jointly own the business	Shareholders own the company
Legal entity	Yes (usually, if registered)	No (traditional partnership)	Yes
Governing law (India)	Indian Trusts Act, 1882 (private trusts) / State-specific Public Trusts Acts	Indian Partnership Act, 1932	Companies Act, 2013

Why trusts matter:

·         Estate/succession planning – Helps individuals pass on wealth to family members in a controlled, structured manner (e.g., protecting a minor's inheritance until they reach adulthood)

·         Charitable purposes – Provides a legal structure to carry out philanthropic activities, often with tax benefits/exemptions (e.g., under Section 12A/80G of the Income Tax Act in India)

·         Asset protection – Can help ring-fence certain assets for specific purposes or beneficiaries

·         Continuity – Ensures management and benefit of property continues smoothly even after the settlor's death, according to their wishes

Quick example: A wealthy individual sets up a trust, transferring ₹1 crore to fund the education of underprivileged children. They appoint trustees to manage this money — investing it wisely and using the returns to pay school fees for selected children each year. The settlor created the trust, the trustees manage it, and the beneficiaries are the children who benefit from it