Who can be a Trustee? All you need to Know
The Article ‘Who can be a Trustee’ is a brief analysis of the Indian Trusts Act of 1882 regarding who can form a trust, the appointment of a trustee, and the competency to be appointed as a trustee.
The Article ‘Who can be a Trustee’ by Utsav Kumar is a brief analysis of the Indian Trusts Act of 1882 regarding who can form a trust, the appointment of a trustee, and the competency to be appointed as a trustee. The Author elucidates blood relatives as trustees in Charitable/Public trust. The Article explains the categories of people by whom new trustees are appointed. The author explains the purpose behind the enactment of the India Trust Act, 1882. The author explains through section 10 of the Indian Trusts Act of 1882 the meaning of trustee. The author concluded the importance of trustees as they hold fiduciary relations.
A Brief Introduction: What is a Trust?
Often, this question arises in the minds of people “who can form a trust”. But the major ambiguity is whether blood relatives can become trustees in public trusts or charitable trusts. To answer this, we have to look closely at the provisions of the trust act.
Trust is formed when at least two people work together to achieve a common goal. ‘Trust’ is a responsibility attached to property ownership that arises from the 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(Section 3).
The purpose of the Trust Act
The Indian Trusts Act of 1882 specifies that a trust cannot be established for an illegal purpose(Section 4). In general, trusts can be established to accomplish one or more of the following goals:
- To discharge the author of the trust’s benevolent or religious impulses to ensure public benefit.
- For the sake of the well-being of family members or other relatives who rely on the settler’s trust.
- In order to ensure proper administration and property protection.
- To manage the affairs of a provident fund, superannuation fund, gratuity fund, or any other fund formed by a person for the benefit of its employees.
- In order to claim a charity or religious exemption under Section 10 or 11 of the Income Tax Act of 1961.
Who can create Trust?
As per Section 7 of the Indian Trusts Act of 1882, a trust may be created by:
- Every person who is competent to contract: This includes an individual, AOP, HUF, firm, and so on.
- If a trust is to be established on or for the benefit of a minor, authorization from a Principal Civil Court with original jurisdiction is required.
It also relies on the law in effect at the time and the extent to which the author of the trust intends to dispose of his property.
Trustee
Section 10 of the act provides who may be a trustee, it says“every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract.”
In simple words, if any person is competent to make a contract, then he may be a trustee, and a trustee might be somebody who has physical custody or legal title to the property.
Blood relatives as trustees in Charitable/Public trust
Family members having blood relations may be members of the trustee board. There is no such bar/restriction. The trustee may be a beneficiary, a family member, a relative, or a professional trustee may be chosen to oversee the trust. The author may also be a trustee or the trust’s governing trustee.
‘Whether blood relatives can become trustees’; this question arose due to the Society Registration Act.
Though trust and society are frequently confused by a layman, they differ in terms of their conception, management, and structure. Trust is best suited when formed for the benefit of a specific person or the general public, whereas societies choose to benefit a specific section of society or a specific group. Unlike a trust, which is a legal arrangement in which one person holds property for the benefit of another, a society is an organized group of people who come together for any purpose related to literature, science, or charity.
In a trust, a family member can become a member, whereas, for the purpose of charitable society which has been mentioned in Section 20 of the Societies Act. Traditionally, a family member cannot form a society. But in the case of Brij Mohan Gupta v. The Registrar Of Societies (2012), the Delhi High Court held that the right to register a society, as a legal entity, is available to any seven or more persons coming together, whether they are related to each other by blood or not.
Who are not competent to be trustees
The following are not proper persons within the meaning of this section:
- A person domiciled abroad
- an alien enemy
- a person having an interest inconsistent with that of the beneficiary
- a person in insolvent circumstances
- unless the personal law of the beneficiary allows otherwise, a married woman and a minor.
Appointment of a new trustee
A new trustee may be appointed if:
- Any trustee resigns, or any trustee dies.
- Any trustee who is absent from India for a continuous period of six months or who leaves India to live abroad
- Any trustee is declared bankrupt.
- Any trustee who wishes to be discharged from the trust refuses to act as a trustee or accepts an inconsistent trust must be discharged.
- If, in the opinion of a court, any trustee becomes unfit or personally incapable of acting as a trustee.
A new trustee can be appointed by
- A person nominated by the instrument of trust for that purpose; or
- Creator/Author of trust or
- With the court’s permission, the retiring trustees (if they all retire at the same time) or the last retiring trustee;
- Surviving or continuing trustees, or the trustee in office at the time;
- The last surviving and continuing trustee’s legal representatives; or
- If the aforementioned persons are unable to appoint a new trustee, the court will do so.
Conclusion
The entire discussion of ‘who can be a trustee’ revolves around Section 10 of the Trust act, which allows all persons to be a trustee who is capable of holding assets and are competent to make contracts. So we can say that the Indian Trust Act does not restrict the same family having blood relations from being members of a trustee board. The position of trustee is important because trustees have a fiduciary relationship with the trust’s beneficiaries. This means they are in a unique position of trust and have a number of important responsibilities.
Originally Published on: Jul 21, 2022
[1] The Indian Trusts Act, 1882, Available Here
[2] Societies Registration Act, 1860, Available Here