A trust refers to the fiduciary relationship wherein an individual, termed the trustor or settlor, confers the title of their property or assets upon another person, known as the trustee, for the benefit of a third party, referred to as the beneficiary. This arrangement ensures legal protection for the author’s property. Trusts are established through a trust deed or instrument and must always serve a lawful purpose.
Two distinct categories of trusts exist: public and private trusts. The primary points of difference between public trust and private trusts is in their nature and scope. The creating of a trust, whether public or private, involves a careful legal framework that safeguards the interests of all involved parties. In this blog, we see the main point of difference between public trust and private trust.
Understanding Trust Registration
Before going into the difference between public trust and private trusts, let us understand what is trust registration. A trust, as elucidated in section 3 of the Indian Trusts Registration Act, 1882, is construed as a legal obligation intricately linked to the possession of assets, stemming from a trust instilled in and acknowledged by the proprietor or explicitly declared and accepted by the proprietor. This obligation is established for the advantage of either a specified individual or entities, encompassing both another individual and the proprietor himself. Essentially, it entails the conveyance of property from one party, denoted as the Settlor, to another, referred to as the “trustee,” who assumes the responsibility of managing said property for the well-being of a designated beneficiary or beneficiaries.
A crucial prerequisite is that the Settlor must officially and legally relinquish ownership of the assets in question to the trustee of the Trust. In the legal landscape of India, the trust structure emerges as the second most prevalent modality of registration, providing a framework wherein property is effectively administered for the ultimate benefit of identified individuals or entities.
Understanding Public Trust
Public trust is established for the larger community or the general public, serving a specific purpose. It caters to the needs and welfare of the broader populace.
Types of Public Trust
A private trust is categorised into two types: charitable public trust and religious public trust. The charitable public trust is been created for benevolent causes, and the religious public trust is been instituted for religious purposes only. It is also possible to have a public trust that combined both charitable and religious objectives.
Understanding Private Trusts
Before going into the difference between public trust and Private Trusts, it is essential for comprehend the concept of a private trust.
Definition of Private Trust
A private trust is establish for the exclusive benefits of one or more individuals, and its enforceability lies with designated third parties known as beneficiaries. Typically, these trusts are created with the well-being of the trustor’s family, friends, and relatives in mind. The specific of private trust deeds explicitly stated the identified beneficiaries and ensure that the designate property serves the intented purpose, extending benefits solely to those individuals enumerated in the deed.
Types of Private Trust
Private trusts fall into two most important types: revocable trusts and irrevocable trusts.
1. Revocable Trusts
Revocable trusts supply to the person creating the believe, called the trustor, with the power for exchange the terms or stop the trust with after it’s set up.
2. Irrevocable Trusts
Irrevocable trusts can be splitted into types: Irrevocable Non-discretionary Trusts and Irrevocable Discretionary Trusts.
Irrevocable Non-discretionary Trusts: In this types, the trustor maintains complete control over the trust rules.
Irrevocable Discretionary Trusts: On other facet, in an irrevocable discretionary trust, the trustee have the authorities to encompass or exclude beneficiaries as wished.
Difference Between Public Trust and Private Trust
Given below are the main point of difference between public trust and private trust:
1. Legislative Governance:
Public Trust: Governed by laws enacted by the state where established.
Private Trust: Governed by the Indian Trust Act, 1882.
2. Beneficiaries:
Public Trust: Uncertain, numerous, and not specifically known.
Private Trust: Known and specific beneficiaries, typically relatives, friends, or family of the trustor.
3. Trusteeship:
Public Trust: Managed by a board of trustees.
Private Trust: Administered by a limited number of appointed or managing trustees.
4. Duration and Preference:
Public Trust: Generally more permanent and given preference over private trusts.
Private Trust: Typically of a more temporary nature.
5. Registration Requirements:
Public Trust: Mandatory registration for immovable property; desirable for movable property for tax exemptions.
Private Trust: Registration not crucial, even for immovable property.
6. Types of Trusts:
Public Trust: Charitable and Religious.
Private Trust: Revocable, Irrevocable Discretionary, and Irrevocable Non-discretionary.
7. Distribution of Assets After Death:
Public Trust: Assets do not automatically pass to other entities; dependent on legal documents like wills.
Private Trust: Assets pass to heirs in the absence of a will.
8. Purpose and Scope:
Public Trust: Created for the benefit of the public as a whole.
Private Trust: Established for the benefit of private individuals.
9. Transparency and Inspection:
Public Trust: Open for inspection; anyone can scrutinise the management and purpose.
Private Trust: Norms are private; only beneficiaries, lawyers, and the trustor have access.
Final Thoughts
The difference between public trust and private trusts are vital in shaping their legal frameworks and operational dynamics. While public trusts, governed by state laws, cater to uncertain and numerous beneficiaries with transparency and permanence, private trusts, regulated by the Indian Trust Act, have known beneficiaries, specific trustees, and a more private nature. The duration, registration requirements, and distribution of assets after death further delineate the distinct functions and purposes of these trusts. Understanding these difference between public trust and private trusts is essential for individuals navigating the complexities of trust establishment and management, ensuring alignment with their intended goals and legal obligations.
