A Comprehensive Study Of A Deed Of Trust With A Sample Draft

KEY TAKEAWAYS:

• Sample Draft of a Deed of Trust.
• Deed of Trust consists of three individuals i.e. the lender, the borrower, and the trustees.
• There are two kinds of Trust such as a Private Trust and a Public trust which are further subdivided into various parts.
• Any individual can create a Trust but that trust must abide by the rules of law.
• Difference between a Deed of Trust and a Mortgage.
• Documents that are required for registration purposes.
• Post-registration requirements after forming a trust.
• Which Trust Deed qualifies as an NGO.
• Important clauses necessary in a Deed of Trust.

SAMPLE DRAFT – DEED OF TRUST

THIS DEED OF TRUST executed on the ______ day of _______, _________

BETWEEN

___________________(Name and PAN),son of ___________________, by faith- ___________________, by nationality-___________________, residing at ____________________________(Party of the first part) hereinafter called “SETTLOR OF THE TRUST”

A N D

1.    ___________________(Name and PAN),son of ___________________by faith___________________, by nationality___________________, residing at ______________________________

2.    ___________________(Name), wife of ___________________,  by faith___________________, by nationality- ___________________, residing at ___________________

3.    ___________________(Name), son of ___________________, by faith___________________, by nationality___________________, residing at ______________________________________

(Hereinafter called “THE TRUSTEES” which expression shall unless repugnant to the context or meaning thereof be deemed to include the supervisors or supervisor of them and the trustees or trustee for the time being of these presents and their heirs, executors and administrators of the last surviving trustee, their or his assignees) of the other part;

WHEREAS the party hereto of the first part is possessed of the sum of Rs ___________________as his absolute property and he is desirous of creating a Religious/Charitable/Educational Trust for the benefit of the humanity at large.

AND WHEREAS each of the parties hereto of the “Other Part” has individually and jointly has agreed at act as Trustees of the Trust, proposed by the party of the first part.

AND WHEREAS all activities of the trust shall be carried out with a view to benefit the public at large, without any profit motive and in accordance with the provisions of the Income-tax Act, 1961 or any statutory modification thereof.

AND WHEREAS the trust is hereby expressly declared to be a public charitable trust and all the provisions of this deed are to be considered accordingly.

AND WHEREAS  All aims/objects/purpose of the trust herein stated herein below shall come into effect/force after necessary approval of the competent government authority in the cases where affiliation/permission /license/sanction is required.

NOW THIS INDENTURE WITNESSTH AS FOLLOWS:

1.    SETTLEMENT

The party of the first part, the settler, does hereby settle the sum of ___________________ in Trust, with the name and for the objects hereinafter stated, by delivering the said amount in cash which the party of the other part, the Trustees, have accepted the receipt of which they do hereby acknowledge, to hold the same in and to the Trustees with the powers and obligations as provided hereinafter.

2.    NAME

The name of the Trust shall be ______________________________.

3.    PLACE

The principal office of the Trust shall be situated at___________________________ (Place) or such other place as the Trustees may from time to time decide. The Trust may also carry on its work at any other place or places, as decided by the Trustees.

4.    OBJECTS

a)    Educational – to establish, run, maintain or assist any schools, colleges, universities, hostels, libraries or any other educational or other institution for coaching, guidance, counseling or vocational training or to grant individual scholarships to poor, deserving and needy students for elementary and higher education.

b)    Medical – 

(i) to establish, run, maintain or assist any hospitals,  nursing home, clinics, dispensaries, diagnostic centres or other medical institution or to grant assistance to needy and indigent persons for meeting the cost of medical treatment. 

(ii) to carry on or sponsor or provide aid for research programme in the field of medicines, family planning, nutrition and other areas which are beneficial to the public at large

c)    Relief to poor – to give financial or other assistance in cash or in kind by way of distribution of books, notebooks, clothes, uniforms, or food, etc. for the poor and indigent and to grant aid to the poor widows and orphans. 

d) Natural Calamity- to grant relief on the occasion of earthquake, landslides, famine, flood, or other calamities and also to give donations to institution, fund or establishments for relief on such occasion.

e)     Public Welfare- to establish, run, maintain or assist any dharmashalas, rest houses, common prayer halls, yoga centres, health centres, healing centres, and perform or arrange for and provide for amenities and services there for general public utility.

f)    Other objects of general public utility – 

i.    to acquire/ construct any property for the sole use for public good by making it available for public purposes as for example, houses, library, clinic, crèche, old age homes and/or community hall to be available for use by the public for training, seminars, discourses and other public functions for benefit of the community in general.

ii.    to grant aid and/or donate money to any fund, trust or institution established or engaged in advancement of any public charitable purpose as aforesaid.

iii.    to undertake any other activity incidental to the above activities but which are not inconsistent with the above objects.

PROVIDED the Trust may assist/donate the other TRUST to carry out the various objects mentioned in the objects clause in such manner and to the extent the Trustees may decide upon from time to time.

5.    FUNDS

The Trustees may accept donations, grants, subscriptions, aids or contributions from any person, Government, Local authorities or any other charitable institutions, in cash or in kind including immovable property without any encumbrance, but the Trustees shall not accept any receipt with any condition or terms inconsistent with the objects of the Trusts.  While applying such receipts to the objects, the Trustees shall respect the directions, if any, by the granter. Any receipt with specific direction to treat the same as part of the corpus of the Trust or separate fund shall be funded accordingly.

6.    INVESTMENTS

i.    All monies, which shall not immediately required for current needs shall be invested by the Trustees in eligible securities and investments, or in banks. Such investments shall be in the name of Trust or Trustees.    

ii.    That the trustees shall invest the trust fund, carry on any business with the trust fund and/or enter into partnership on behalf of the trust, as they may deem fit.

iii.    That the trustees shall manage the trust fund and investments thereof as a prudent man would do the same. They shall recover all outstanding and meet all recurring and other expenses incurred in the upkeep or management thereof.

iv.    That the trustees shall receive and hold the income of the trust on behalf and for the benefit of the beneficiaries under the trust.

v.    That the trust fund including investments, deposits will be held by the trustees for safe custody. Trustees may keep the deeds, securities or investment in any Bank Locker for safe custody.

vi.    That the trustees shall invest the Trust Fund in securities, Bank deposits, debentures of Public Undertaking, etc. as the trustees deem fit and as permitted under Section11(5) of the Income Tax Act, 1961 or any statutory modifications thereof.

7.    POWER OF TRUSTEES

    That the trustees shall have the following powers: -

i.    to manage all the assets and/or properties of the trust including the conduct of business;

ii.    to appoint employees and to settle the terms of their service, remuneration and termination;

iii.    to look into the management of the trust;

iv.    to invest the funds of the trust, in bank or in the purchase of company shares or securities or other movable and movable properties;

v.    to sell, alter, vary, transpose or otherwise dispose or alienate the trust properties or any investment representing the same for consideration and to reinvest the same;

vi.    to pledge or mortgage the trust properties for raising loans;

vii.    to open the bank accounts in the name and on behalf of the trust and to operate the same;

viii.    to enter into a partnership on behalf of the trust with any other party or parties;

ix.    to pay all charges, impositions and other outgoing payable in respect of the trust properties and also to pay all cost of the incidental to the administration and management of the trust properties;

x.    to file suit on behalf of the trust and to refer to arbitration all actions proceedings and disputes touching the trust properties and to compromise and compound the suits filed;

xi.    to accept any gift, donation or contribution in cash or in kind from anyone for the objects of the trust;

xii.    to seek legal opinion from lawyers and/or other professionals as and when required in matters relating to the Trust;

xiii.    to appoint their representatives for any of the aforesaid purposes.

The Trustees shall comply with the provisions of the Income Tax Act, 1961 or any statutory modification thereof which may relate to and have the effect of exempting the income of the Trust from Tax under the provisions of the said Act and the Trustees shall not do anything or take any action by which such exemption may be denied to the Trust or withdrawn and no part of the income or funds of the Trust shall be utilized or applied for any purpose which is not a charitable purpose.

19.     BANKING ACCOUNT

The Trustees may open current or deposit account or accounts in the name of the Trust with any scheduled bank on such terms and conditions as they may deem fit and may authorise one or more of the Trustees or any other person to operate such account or accounts jointly or severally and subject to such conditions as the trustees may decide from time to time. All income, subscription and pecuniary donations for the general purpose of the Trust and the income, investments and all other moneys from time to time forming part of the general revenue of the Trust shall on the same being received be paid into such banking account.

20.     ACCOUNTS AND AUDIT

i.     The Trustee shall keep proper books of accounts of all the assets, liabilities and income and expenditure of the Trust and shall prepare an Income and Expenditure Account and Balance Sheet for every year as on the last day of March.

ii.     The accounts of every year shall be audited by a Chartered Accountant or a firm of Chartered Accountants who shall be appointed for that purpose by the Trustees and the audited accounts shall be placed at a meeting of the Trustees, which shall be held before the end of the succeeding year. 

21.     MEETINGS OF TRUSTEES

i.     The Trustees shall hold the meeting at least four in every calendar year and at such other times and in such places as they shall from time to time decide and any trustee may at any time convene a special meeting of the trustees at least 30 days notice being given to the other trustees at their respective last known places of residence or business stating the time and place of holding the same and the notice of the matter to be discussed and the business to be transacted thereat.  

ii.     There shall be a quorum when one half of the trustee or minimum of two trustees are present at ay meeting.

iii.     The trustees shall at each of their meetings appoint one of their member to be chairman.

iv.    Every matter shall be determined by the majority of votes of the trustees present and voting on the question. In case of equality of votes the chairman shall have a second or casting vote. 

v.     The Trustees shall provide and keep a minute book in which shall be entered the proceeding of the meetings and which shall be signed by the chairman at the conclusion of each meeting or at some future meeting if the minutes shall have been duty confirmed. 

22.     IRREVOCABLE

    This Trust is irrevocable.

23.     AMALGAMATION

The trustees may amalgamate the trust with another Charitable Trust or Institution having similar objects with prior permission of the Charity Commissioner/Court/any other law as may be applicable for the time being.

24.     WINDING UP

In the event of dissolution or winding up of the Trust the assets remaining as on the date of dissolution shall under no circumstances be distributed amongst the Trustees but the same shall be transferred to some other similar Trust/Organisation whose objects are similar to those of this Trust having registration under section 12AA or 10(23C) of the Income Tax Act, 1961, following section 115TD of the Income Tax Act, 1961, with the permission of the Charity Commissioner/ Court/ any other law as may be applicable for the time being. 

The Trustees shall be indemnified against all losses and liabilities incurred by them in the execution of the Trust and shall have a lien over the funds and properties of the Trust for such indemnity.

SCHEDULE OF THE TRUST

The Trust presently has no property either movable or immovable except trust fund amount of Rs___________________

IN WITNESS WHEREOF, the Parties hereunto have signed and delivered the presents on the day and year first hereinabove written.  

WITNESS TO ALL SIGNATORIES    

1.

(…………………….) 

                            SETTLOR

2.                                                    

                        1.    (…………………..……..)

2.    (………..………………..)

3.    (…………..………..……..)

TRUSTEES

____________________________________

Dated        day of                           , 2018

____________________________________

TRUST DEED

OF 

____________________________

B E T W E E N 

____________________________

….. SETTLOR

- A N D - 

____________________________

….. TRUSTEE

AN IN-DEPTH ANALYSIS OF A DEED OF TRUST

INTRODUCTION

There are many kinds of Deeds in India, out of which there is the Deed of Trust. A Deed of Trust can be defined as a security instrument in which the borrower, (one who borrowed a certain amount of sum) under a promissory note, pledges his property as a security for repayment of money to the lender. A Deed of Trust has three heads/parties involved in it. These three parties are the Borrower, the Lender, and the Trustee. The Indian Trust Act, of 1882 governs the private trusts established in India.

The Borrower, also known as the Trustor is the person whose property is being held as a security in the trust. Such property is held in the trust as long as the loan is paid off. Although the property is kept as a trust, the Borrower enjoys all the benefits of the house even though he is no longer the legal title holder of the property. He has the right to live and use the property of his own free will but cannot do anything that will involve the title of the property as long as he keeps paying off the loan according to the terms and conditions outlined in the Deed of Trust.

The Lender, also known as the Beneficiary is the party who had lent the required sum of money to the Borrower under the terms outlined in the Deed of Trust. No more encumbrances over the property made as a security from the lender, once the loan has been fully paid off. Then, the Deed of Trust gets canceled and the Borrower gets the clear title of the property.

The Trustee is the person who holds the legal title of the property while the Borrower is paying off the loan amount. They are the title holders of the property only for the period of payment of the loan amount. Once the loan amount is fully paid by the Borrower, the trustee is responsible to dissolve the trust and transfer the title of the property back to the Borrower.

WHAT IS A TRUST?

 A trust is an obligation annexed to ownership of property and arises 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. If the borrower sells the secured property before the loan is paid off to the lender, then the trustee will use the amount incurred by selling the property to pay off the loan first. On the other hand, if the borrower fails to pay the full loan amount, the property will go into foreclosure and the trustee will be responsible for selling such property.

The property secured in a Deed of Trust does not always mean a real estate property. It may also be cash, shares, or any other valuable asset. The instrument by which the trust is declared or created is called the Trust Deed or the Instrument of Trust.

TYPES OF TRUST:

There are mainly two types of Trusts, Private Trust and Public Trust. Private Trust is further divided into two parts, Private Specific Trust and Private Discretionary Trust. On the other hand, Public Trust is also divided into two parts, namely, Public Religious Trust and Public Charitable Trust. Such parts and vividly described below.

1.    PRIVATE TRUST: A private trust forms a fiduciary relationship between the Trustor and the Trustee, i.e. it grants a beneficiary, the right to money or property. It is for a closed group of people where the beneficiaries can be identified. 

• i.    PRIVATE SPECIFIC TRUST: It is a type of private trust where the individual shares of the beneficiaries are determinate or ascertainable. For example, in a trust made, by Mr. A, beneficiary 1 will get a share of 60% while Mr. B, beneficiary 2 will get a share of 40%. 
• ii.    PRIVATE DISCRETIONARY TRUST: It is a type of private trust where the individual shares of the beneficiaries are indeterminate or unascertainable.

2.    PUBLIC TRUST: A public trust is created for the benefit of a large group of people. 

• i.    PUBLIC RELIGIOUS TRUST: This type of trust is created for religious purposes for the public at large. For example, a temple is located very far from a colony which makes it difficult for others to visit there. A group of people decided to construct a temple in such an area for the benefit of people at large by contributing more or less amount from every individual of the society. Later for looking after the funds collected by the temple and its usage, a group of people is appointed as trustees. Such kind of trust is known as Public Religious Trust.
• ii.    PUBLIC CHARITABLE TRUST: Such type of trust is created for donations to a charity by a large group of people that does not discriminate against caste, sex, or religion. Places like schools, hospitals, etc. fall under such a category of trust. For example, for the foundation of a school, a group of people come together, form a trustee board, and donate money for the school's foundation. Such a school becomes a charitable trust where children can get admitted and continue their studies with lower fees compared to private institutions. 

 WHO CAN CREATE A TRUST?

Anyone/ any individual can create trust of any kind. There is no bar in such except for a minor and a person of unsound mind. It should be created for a lawful purpose only. Section 4 of The Indian Trust Act, 1882 lays down the grounds under which the trust is said to be unlawful. Such grounds are as follows:

1.    It is forbidden by law.

2.    It defeats the provisions of Law under such Act.

3.    The trust is attained by fraudulent means.

4.    It is involved in causing injury or harm to another individual or his property.

5.    It is immoral and against the public policy.

Every individual member, HUF, AOP, Company, or Association of persons can create a Trust. If a trust is at all to be created by or on behalf of a minor, then permission is to be taken from a Civil Court of Original Jurisdiction. 

A Charitable or Religious Public Trust enjoys various tax exemptions and incentives from the government. Donations to a Charitable establishment are deductible from the donor’s taxable profits. They can claim such exemption under sections 10 and 11 of the Income Tax Act, 1961.

DEED OF TRUST V. MORTGAGE:

To see how a Deed of Trust differs from that of a Mortgage, we first need to understand the meaning of Mortgage. According to section 58(a) of The Transfer of Property Act1882, a Mortgage is defined as a loan taken from the lender by the borrower by securing the interest of an immovable property for the purpose of securing the payment of money advanced or to be advanced. Many people get confused about the point of the Deed of Trust and Mortgage being a similar thing. Although both involve agreements between the lender and the borrower which lays down the borrower’s promise to repay the borrowed money, they are not the same thing in general. Both are different from each other in the following matters:

1. INDIVIDUALS INVOLVED IN THE PROCESS: During a Mortgage of a property, only two parties are involved i.e., the lender and the borrower. Whereas on the other hand, the Deed of Trust involves three parties i.e. a lender, a borrower, and a trustee, who keeps the title of the property until the loan is completely paid off to the lender by the borrower. 
2. INDIVIDUALS RESPONSIBLE FOR INITIATING FORECLOSURE: Another important difference falls in the process of foreclosure. If the borrower defaults in the payment of the loan amount, the trustee is empowered to start the process of foreclosure in a Deed of Trust. Whereas, in Mortgage, the lender is the one who initiates the foreclosure process.
3. DIFFERENT PROCESS OF FORECLOSURE: In a Mortgage, there will be a judicial foreclosure. A judicial foreclosure involves a court-supervised process enforced when the lender files a suit against the borrower for his default in paying off the loan. On the other hand, a Deed of Trust involves a non-judicial foreclosure. It generally adheres to the procedure laid down in the Trust Deed and State Law. If the borrower fails to clear the loan taken, then the property is put up for auction through a trustee’s sale.
4. DETAILS OF FORECLOSURE: In a Deed of Trust, the time for foreclosure is lesser compared to a Mortgage. This is because, in a Deed of Trust, foreclosure takes place according to the procedure laid down in the Deed. Whereas in a Mortgage, it will involve court proceedings which is a lengthy process and requires a lot of time and money.

In the case of CHURCH OF SOUTH INDIA (C.S.I) TRUST ASSOCIATION V. BENOY, the Kerala High Court laid down that a “Trust Immovable property shall not be leased, Mortgaged or sold without the sanction of Synod Executive Committee.” 

WHICH TYPE OF TRUST ARE NGOs?

Any kind of private trust does not fall under the category of NGOs. Any trust that avails the IT benefits also does not fall under NGOs. All kinds of Public Trust whether Public Religious Trust or Public Charitable Trust can come under the title of NGO. Any institution that works for the benefit of the public at large comes under the title of an NGO.

DOCUMENTS REQUIRED FOR THE REGISTRATION OF TRUST:

The key documents that are required for the registration of a trust are listed herein below:

a.    Proof related to identity for lender and trustees such as PAN, Aadhar card, Voter ID, Passport, etc.

b.    Address Proof related to the Registered Office such as a Copy of the Certificate of Property/ Utility bills.

c.    No Objection certificate from the Landlord if the property is rented.

d.    Trust Deed’s Objective.

e.    Detail about the Trustee and settlor such as self-attested Copy ID and Address Proof and Occupation.

f.    Trust Deed on Proper Stamp Value.

g.    Trustee and Settlor photos.

h.    PAN Details.

i.    Trustee Deed must reflect the following information:

Number of trustees

• Trust registered address
• Proposed name of trust
• Proposed rules that will govern the trust
•  Presence of settler as well as two witnesses at the time of registration of trust in front of the sub-registrar.

POST-REGISTRATION REQUIREMENTS AFTER FORMING TRUST:

Some post-registration requirements are required after forming a trust. They are as follows:

• Apply for a PAN card.
• Open a bank account.
• For donations and IT benefits, fill up the ATG and 12A Registration form.
• FCRA registration is mandatory for trust institutes to accept donations by NRI Foreigners.

ANNUAL COMPLIANCE RELATED TO TRUST:

There has to be an annual compliance that is to be submitted every year in the appropriate forum to get its benefits. This is a compulsory process to be done by every trust institute such as NGOs. The steps to be followed are:

• Managing Books of Accounts every year. This consists of the profit and loss incurred by the institutions for the whole financial year.
• List of donors along with their vivid details.
• If the benefits granted over ATG or 12A registration or FCRA registration are taken, then it is compulsory to audit the Books of Accounts of that financial year.
•  It is compulsory to file IT returns every year at the appropriate forum.

IMPORTANT CLAUSES TO BE INCLUDED IN A DEED OF NGO:

There are some important clauses that should be inserted in a Deed of Trust regarding an NGO. These important clauses are as follows:

1. No benefits shall be given directly or indirectly to the founders, trustees, or promoters as well as their relatives.
2.  There must be an ‘Irrevocable Clause’ in the Trust Deed. This is because the Income Tax department considers an irrevocable trust i.e. a trust that cannot be broken in any way as an NGO only.
3. To undertake Corporate Social Responsibility projects and to carry on all those activities as mentioned under Schedule VII relevant to section 135 of the Companies Act, 2013.
4. It must be authorized in its main object to give donations to other NGOs.
5. All surplus funds of the NGO shall be invested strictly as per sec 11(5) of The Information Technology Act, 1961. There is a list notified in this Act where such funds can be invested whether in the Post Office or as a Fixed Deposit etc.