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What is a private trust?

What is a private trust?

11-Dec-2025

Wills & Trusts

Answer By law4u team

A private trust is a legal arrangement where a person (known as the settlor or trustor) transfers their assets to a trustee, who is legally obligated to manage and administer those assets for the benefit of specific beneficiaries. Unlike a public trust, which is established for the public good or charitable purposes, a private trust is set up for the benefit of a private group of people or specific individuals, often the family members of the settlor. The core purpose of a private trust is to ensure that the settlor’s assets are managed and distributed according to their wishes, typically after their death. This can provide for loved ones, ensure proper management of assets, and sometimes help in tax planning or asset protection. Key Elements of a Private Trust 1. Settlor (Trustor): The settlor is the person who creates the trust and transfers their assets into it. They set the terms of the trust, including how the assets should be managed and distributed. The settlor’s instructions are typically outlined in a trust deed, which is the formal document that establishes the trust. 2. Trustee: The trustee is the individual or institution responsible for managing the trust’s assets according to the trust deed and the law. Trustees have a fiduciary duty, meaning they must act in the best interests of the beneficiaries and follow the terms set out by the settlor. Trustees can be family members, friends, or professionals (like lawyers or financial institutions). 3. Beneficiaries: Beneficiaries are the people or entities that benefit from the trust. They are the individuals or organizations that receive assets or income from the trust, based on the settlor’s instructions. Beneficiaries can be individuals (e.g., children, spouse) or entities (e.g., family foundations). 4. Trust Property (Corpus): This refers to the assets or property that the settlor transfers into the trust. The trust property can include real estate, money, stocks, bonds, or any other valuable assets. The trustee holds legal ownership of the trust property, while the beneficiaries hold equitable ownership or the right to benefit from it. 5. Trust Deed: The trust deed is the written document that sets out the rules, terms, and conditions of the trust. It outlines the powers of the trustee, the rights of the beneficiaries, the distribution schedule, and any other instructions from the settlor. This document serves as the primary guide for the administration of the trust. Types of Private Trusts 1. Revocable Trust: In a revocable trust, the settlor retains the right to alter, amend, or revoke the trust during their lifetime. The settlor can change the beneficiaries, modify the terms, or even dissolve the trust altogether if they choose. This type of trust provides flexibility but does not offer the same level of asset protection or tax benefits as an irrevocable trust. 2. Irrevocable Trust: In an irrevocable trust, once the settlor transfers assets to the trust, they cannot alter or revoke the terms. The settlor relinquishes control over the assets and cannot make changes without the consent of the beneficiaries or the trustee. Irrevocable trusts offer advantages such as asset protection (since the assets are no longer part of the settlor’s estate) and potential tax benefits (as the trust may be treated separately for tax purposes). 3. Discretionary Trust: In a discretionary trust, the trustee has the discretion to decide how the income or assets of the trust are distributed among the beneficiaries. The trustee’s decisions are typically based on the terms set out by the settlor, but there is flexibility in how and when the beneficiaries receive benefits. This type of trust is often used when the settlor wants to ensure that the beneficiaries are supported but doesn't want to specify exact amounts or schedules. 4. Fixed Trust: In a fixed trust, the settlor specifies exactly how the trust’s assets should be distributed among the beneficiaries. The amounts, timing, and beneficiaries are predetermined in the trust deed, and the trustee has little or no discretion in how to allocate the trust’s resources. 5. Testamentary Trust: A testamentary trust is created through a will and comes into effect upon the settlor's death. It is a common method of providing for loved ones after death. Unlike living trusts (inter vivos), which are established during the settlor's lifetime, testamentary trusts are set up in a person's will and are often used to ensure the proper management of estate assets after death. Benefits of a Private Trust 1. Estate Planning: A private trust can be an effective tool for estate planning, allowing individuals to manage the distribution of their assets according to their wishes. It helps avoid the lengthy and costly probate process and ensures that assets are transferred to the beneficiaries without delay. 2. Asset Protection: In the case of irrevocable trusts, the assets placed in the trust are typically protected from creditors and lawsuits, as they are no longer part of the settlor’s personal estate. This can be useful for shielding assets from financial or legal risks. 3. Tax Benefits: Some types of trusts, particularly irrevocable trusts, may offer tax advantages. For example, assets in an irrevocable trust may not be subject to estate taxes when the settlor passes away, as the assets are considered outside the settlor's taxable estate. 4. Control Over Asset Distribution: A private trust allows the settlor to set specific conditions for how and when beneficiaries receive their share. This is particularly useful in situations where beneficiaries may not be able to manage large sums of money responsibly, such as in the case of young children or individuals with special needs. 5. Confidentiality: Unlike a will, which becomes public after death, a private trust allows for the distribution of assets without the need for probate, maintaining the privacy of the settlor and the beneficiaries. Private Trust in India: In India, private trusts are governed by the Indian Trusts Act, 1882. This law provides the framework for the creation, administration, and enforcement of private trusts. Some key points in the Indian context include: A private trust can be created either during the settlor’s lifetime (inter vivos) or through a will (testamentary trust). A private trust must have specific, identifiable beneficiaries (individuals, family members, etc.). The trustee has a fiduciary responsibility to act in the best interests of the beneficiaries and according to the terms set out in the trust deed. Conclusion A private trust is a flexible legal instrument used for managing and distributing assets to specific individuals or groups. It offers estate planning benefits, including asset protection, tax advantages, and control over asset distribution. Whether set up for family wealth management or providing for loved ones after death, a private trust allows the settlor to maintain control over how their assets are handled and distributed. It is important to note that the laws and regulations governing private trusts may vary by jurisdiction, and consulting a legal professional is advisable when setting up a trust to ensure compliance with all legal requirements.

Answer By Anik

Dear client, A trust is a mechanism by which a third party is made as a trustee for the purpose of holding and managing assets on behalf of one or more beneficiaries. Trusts are established by a settlor or author of the trust who transfers property to the trustee under particular terms and conditions according to which the assets are to be managed and distributed. Trusts are commonly used for the following purposes including estate planning, asset protection, tax planning and charitable purposes. The trusts in India are broadly classified as private and public trusts. Private trust is established for the benefit of one or more specific individuals who could be clearly identified. The beneficiaries are an individual(s) that are identifiable. The Indian Trusts Act of 1882 governs private trusts in India. These trusts can be created during the lifetime of the settlor (inter vivos) or by way of a will. It is an arrangement whereby the settlor or author of the trust, transfers property to another party, trustee who would hold the property for the benefit for the beneficiaries. There are several instances where the author would make a trust for the benefit of his family which may involve minor children. So the trustee will manage the estate of the author for the benefit of his family. It is a convenient method of managing family property for the benefit of the author's family. A private trust deed ensures that the estate is being utilized only for the benefit of the beneficiaries and not for the personal gain of the trustee. It ensures that the assets of the author are protected, managed and utilized as per his wishes. Essentials of Private Trust 1. Settlor/ Author : It is the author who vests the property in the trust and conveys the legal title to the trustees. The settlor must clearly express an intention which must be explicitly manifested by way of written or spoken words to create a trust by setting aside specific property for the benefit of the beneficiaries 2. Trustees : They hold legal title to the trust assets and manage the property. A trustee to the trust assets and manage the property. 3. Beneficiaries : Persons for whose benefit the trust is created. 4. Trust Property : Any movable or immovable properties including cash, gold, securities, house, land, etc. which is owned by the settlor. The trust must have a clearly defined and identifiable subject matter. 5. Instrument of Trust : The trust must be evidenced by a trust deed that sets out the objectives and terms governing the trust. Types of Private Trust a. Revocable Trusts: It allow the author to have control over the trust assets and can also modify or terminate the trust during their lifetime. b. Irrevocable Trusts: Once established, these trusts cannot be modified or revoked by the author. They are often used for estate planning and asset protection. They are irrevocable c. Discretionary Trusts: It vests powers with the trustees as to the distribution of assets among the beneficiaries. The trustees decide how the trust income and capital are to be distributed among the beneficiaries. This provides flexibility in managing the assets and distributions. d. Fixed Trust : Unlike discretionary trust, here it is the author who decides the shares of the beneficiaries The shares of the beneficiaries are pre-determined and fixed in the Trust deed and this ensures predictable and structured asset distribution. e. Testamentary Trusts: It is created through a will and they come into effect upon the death of the settlor. They are often used to manage and protect assets for minors or beneficiaries with specific needs. A private trust is governed by the provisions of Indian Trusts Act, 1882 and it is distinct from a public trust since a public trust does not have a distinct or identifiable beneficiaries rather it is for the benefit of a particular sect of society. I hope this answer was helpful. For any further queries please do not hesitate to contact us.

Answer By Ayantika Mondal

Dear client, Trusts in India are broadly classified into private trust and public trust, and the distinction mainly depends on who the beneficiaries are. A Private Trust is created for the benefit of specific, identifiable individuals and is governed by Indian Trust Act, 1882. These trusts can be created during the lifetime of the settlor (inter vivos) or by way of will. Unlike a public trust or charitable trust, which is created for the benefit of the general public or a large, uncertain class of people, a private trust is limited to a definite beneficiary who can be ascertained. Private trust may be of various categories, such as: 1. Simple trust: here the trustee's role is limited and mainly involves transferring property to the beneficiaries. 2. Special or active trust: here the trustee has active duties such as managing, safeguarding, and distributing trust property. 3. Revocable and irrevocable trust: depends on whether the settlor retains the right to modify or cancel the trust. 4. Testamentary trust: it is created through a Will that comes to an effect after the demise of the settlor. They are often used to protect the estate for minors, beneficiaries with specific needs. 5. Discretionary and fixed trust: The initial one tells about the discretionary power of the trustee over the estate and the income and capital on how it will be distributed among the beneficiaries. The latter one is totally opposite of the discretionary trust. In fixed trust the author pre-decides the distribution of the estate among the beneficiaries. Under the Act of 1882, private trust must satisfy three essential certainties, they are as follows: 1. Certainty of intention: The intention to create a trust must be clear. 2. Certainty of subject matter: The property forming part of the trust must be identifiable. 3. Certainty of beneficiaries: The beneficiaries must be specific and capable of being determined. Private trust creates enforceable rights in favor of these beneficiaries, who can legally compel the trustee to administer the trust in accordance with the trust deed. In essence, it is a structured way of managing and protecting property for the benefit of particular persons, often used for family arrangements, estate planning, or safeguarding assets, for minors or dependants. I hope this answer was helpful. For further queries, please do not hesitate to contact us. Thank you.