Trust can be defined as :
A public trust is created for religious and charitable purposes or for community development. This trust cannot be used to transfer wealth to your beneficiary (children).No formal deed is required for creating a public trust.
A private trust is used to transfer wealth to your heirs (children).These trusts have to be compulsorily created/registered and Governed under the Indian Trusts Act 1882.
In a private trust you (Settlor) can transfer your movable property such as a car as well as immovable property such as property or land to the trustee (person who holds the property on behalf of your beneficiary/children). A formal document or an agreement is necessary if the trust holds your immovable property such as land or property. This agreement is not necessary for movable property such as a car.
You can transfer shares/mutual funds, fixed deposits, cars, land, apartments/house, gold, art as well as antiques to the trust.
In a trust you the settler (owner of the property) transfer your assets to a trustee (could be your lawyer) to hold them on behalf of your beneficiary (children).The trustee is the executor (manager of the assets) on behalf of your beneficiary and ensures that your wealth reaches the beneficiary irrespective of what happens to you.
Revocable trust : The trust can be revocable where your assets even though transferred to the trust are still yours. You can change the beneficiaries of the trust. If you have been estranged (separated due to a fight) from one of your sons and daughters and left him/her out of the trust and now you are back on friendly terms you can make him/her a beneficiary (share in your property) if the trust is revocable.
Irrevocable trust : In an irrevocable trust after you transfer your assets tthe trustee you no longer are the owner of your assets. The trustee is the owner of the assets on behalf of your beneficiary. You no longer own these assets and they now belong to your children. The trustee will hand over these assets to your children at the specified time say when the child is 18 years of age.
If you have transferred your property to your children and left one of your child out of your property due to a fight which is now patched up (over) you cannot add him/her as a beneficiary unless your other children agree to this if the trust is an irrevocable trust.
An irrevocable trust protects your assets as in case you suffer a business loss or a divorce your assets which have been transferred reach your children as your creditors or your separated wife cannot touch these assets.
In a non discretionary trust all income obtained from the instruments (property or land) transferred to the trust is taxed in the hands of the beneficiaries (your children).
If your child is a minor this income is clubbed to either your income or your spouse’s income depending on whearns more and taxed.
In a discretionary trust the income from your assets transferred to the trust are taxed in the hands of the trust.
The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.