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21 Essentials of a great Trust Deed for Charitable Trusts Registration

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There are formats of Trust Deeds available across the internet some effectively drafted and others loosely. I studied around 67 trust deeds from these available over the internet and noticed that they were missing many essential clauses required for effective, easy & quick registration including registration(certification) under 12A and 80G. 

My experience with registering and advising over 100 charitable trusts does not make me recommend simply copying a deed and pasting it for a Trust. So before I start listing out the essentials, I would like you to kindly fine tune the same for your trust or take an expert’s advice. 

In this article, we will not discuss topics like

  1. what is a trust?
  2. how to register a trust?
  3. and documents required for trust registration

 which you can find easily on this link – http://registrationsindia.com/register-trust-in-india/

Coming to the point where we started our discussion from. I noticed that there are 20 basic and advanced essential elements that a Trust deed must have. These effect your charitable trust’s registration as well as 12A and 80G certifications (registrations).

1. Declaration

The section contains the date of execution of trust, the details of founders of charitable trust including their fathers name, age and address. It also mentions the sum for which the trust is settled i.e. the corpus fund.And the fact that it is accepted by all the trustees.

2. Name

It is important to note here that generic words will not be accepted for Trust registration. Eg. generic name like National India trust may not be registered.

3. Address

The registered address of the office of the trust or any other place which the trustees may decide.

4. Trustees

This clause shall mention the:

  • First Trustees if the trust;
  • Chairman & Managing Trustee;
  • Board of Trustees;
  • Succession: In case the office of the managing trustee falls vacant either by resignation or otherwise which trustee shall become the office holder.

5. Objects

The main objects of the trust. What will be the cause for which the trust is getting registered. It could be education, medical, free legal services, relief to poor.

There could be other objects as well which should be for general public utility. It is very important to note here that the Trust objects should be for the public at large.

6. Constitution of Board of Trustees

Chairman presides every meeting and conduct of the board and the board shall include all trustees. Any trustee can be removed from trusteeship for insolvency or misconduct after a resolution by consensus.

  1. Power of Board of Trustees

This clause should mention the powers of board of trustees related to receipt of donation for corpus or other purposes, Investment of such funds in relation to the objects of the Trust, opening & operating of bank account, convert, acquire, discharge, rent the trust property, power to sue, defend suits & reach compromises, engage or suspend or dismiss employees, delegate duties & responsibilities.

  1. Functions

The trustee(s) have the general functions of managing & administering the trust. Apart from these functions there could be other functions which can be made part of the trust deed like

  • Borrowing of funds against security by way of bank overdraft, loan or otherwise.
  • Assigning authority for Signing & execution of agreement, contract, instruments, documents on behalf of the trustees.
  • Appointment of any trustees as the Secretary

 

  1. Other Incidental Powers

This clause needs to mention other incidental powers with respect to carry over of unexpended income as per income tax laws in India and spent in succeeding years, ability of trustees to sell the moveable & immoveable property by public auctions. Write more.

  1. Duration of Trust

The clause needs to mention the duration of the Trust. In case of Public & Charitable Trust we normally recommend this to continue in perpetuity. And till then the trust is irrevocable.

  1. Amendment to the Trust

This clause should specifically limit amendment to the trust, stating something like “It will not be open to the trustees to amend the object or the terms stipulated in this indenture.”

Further, a saving clause should be added here for amendments in case of effective implementation of objects

  1. No benefit to Settlor, Trustees and others

It is important part of the Charitable Trust Deed to mention that there will be no personal benefit to the settlor, trustee or others. That the Trustee(s) will not be entitled to any remuneration except reimbursements for expenses incurred during the discharge of their duties. Same is valid for Settlor and his family.

  1. Indemnity for Trustees

Trusty will not be personally liable for any act bona fide done on behalf of the Trust in the course of duties as a Trustee.

  1. Suits & Processes

This clause contains list of persons who can sue and be sued in the trusts name normally it is the Managing Trustee.

  1. Meetings

The frequency of meetings, method of notice, votes during meeting, quoram for the meetings, resolution by circulation can form part of this clause

  1. Accounts

Accounts will be kept for the Trust and closed on every 31st March and such account shall also be audited by  a qualified Chartered Accountant within six months from end of the accounting year.

  1. Record

The clause mentions all the records that need to be kept for investments, assets, funds besides Minutes books for resolution and proceedings.

  1. Saving Clause

If the object any of the powers or any provision in the Trust Deed is inconsistent with requirements of law relating to Public Trusts or Trusts eligible for exemption under the income-tax Act, or any other direct tax law, such object, power or provisions will send modified to the extent that they should accord with such law so as to continue to be eligible to be treated as a Public Charitable Trust.

  1. Resolving Disputes

This clause is reserved for the circumstances in which there is a doubt about the interpretation of deed or about duties & functions. The matter is normally referred to an arbitrator in such cases.

  1. Dissolution

In case it becomes necessary to wind up trust then it is necessary to include that the settlor or his legal heirs nor the trustees shall have any right over funds of trust or any property. And that the property shall be handed over to similar trust or institution satisfying requirements of Income Ta x Act, 1961.

  1. Witnesses

Presence of the witnesses for registrations of trust. An identity proof and photograph of the witnesses is also required. This does not form part of the needed but was worth mentioning in the text.

I hope you have liked this article. I would certainly like to know your thoughts on the same. So, leave your comments below.

 

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