A Trust Is Not a Person: What Indian Law Really Says About Family and Charitable Trusts

Most people think a trust is an organisation with its own name, bank account and life. Indian law sees it differently. A trust is not a legal person. It cannot own land, sign a contract or go to court. Only its trustees can do these things. A trust is simply a promise: one person hands over property, and another must use it for someone else’s benefit. Everything below grows from that one fact.

Two trusts that look alike but are not

India has two main kinds. A private trust, often called a family trust, exists for named people such as a spouse, children or grandchildren. A public charitable trust exists for society or a section of it, such as weavers, students or patients.

A private trust is governed mainly by the Indian Trusts Act, 1882. A public trust is governed by state laws on charities, plus the income tax law.

The test is simple. Can you write the beneficiaries’ names on one page? Then it is private. Is the benefit open to the public? Then it is public. The two cannot be mixed. A public charitable trust cannot quietly serve the founder’s family.

How each one is born

Both begin with a trust deed. It names the founder, the trustees, the beneficiaries or objects, the property and the rules of control. It is signed on stamp paper, and stamp duty differs from state to state. If the deed transfers land or a building, the deed must also be registered.

A private trust needs no government approval. It can be ready in days. A public trust must usually be registered under the state law, and in some states this is done with the Charity Commissioner.

Then comes tax registration. The Income-tax Act, 2025 applies from Tax Year 2026–27, and the old Sections 12A, 12AB and 80G(5) now sit under Sections 332 and 354. A trust holding a valid old registration on 1 April 2026 does not need to register again. One more surprise: approval for donor deduction has its own separate life from the exemption registration. A trust can keep one and lose the other.

What to know before you sign

Choose trustees with care. They are personally responsible for any breach of duty. In a private trust, a gift cannot go straight to a child not yet born. A living person must receive an interest first. In a public trust, the objects must be clear and charitable, such as relief of the poor, education, medical relief, protection of the environment or other general public good. Vague objects invite trouble.

Where the money goes

In a private trust, income goes to beneficiaries as the deed says. In general, when the shares are fixed, tax follows the beneficiaries. When trustees decide who gets what, the highest tax rate can apply. If the founder can take the trust back, the income is taxed as the founder’s own.

A public trust follows a stricter rule. It must spend 85% of its income on its objects, and this rule continues under the new Act. The balance can be saved within limits. No one may take profit from it. If trustees or their relatives receive unfair benefit, the trust can lose its tax exemption. Donations from abroad need separate permission under the FCRA law.

When a trustee dies

Trusteeship is a duty, not family property. It does not pass to the trustee’s children by default. The trust does not end either. The deed’s succession clause applies first. If the deed is silent, the remaining trustees continue, or a court appoints a new one. If the last trustee dies with no successor named, the trust is left without anyone to act until a court steps in. In a public trust, the change should be reported to the registering authority.

Which one for what

A private trust suits planned family wealth: protecting minor children, supporting a dependent relative, or passing property in stages after death. A public trust suits work for others: a school, a health camp, or the preservation of a dying craft. A trust that protects handloom weaving belongs in the public category, because the benefit goes to a craft community and not to the founder’s family.

How each one can be closed

A private trust closes as its deed directs. It can be revoked only if the deed keeps that power, or if every beneficiary, being an adult of sound mind, agrees. If a beneficiary is a minor, a court is needed. Assets are distributed, a dissolution deed is registered when land is involved, and final tax returns are filed.

A public trust is harder to close. The founder cannot take the assets back. Under the cy-pres principle, the remaining assets must go to another charity with similar objects, with the approval of the authority or court. Moving them to a non-charitable body can bring a heavy tax on the wealth the trust built up. After that, the tax registrations, bank accounts and final audit must be closed.

A trust is easy to start and hard to leave. Write the exit before you write the first clause.

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