Trust Law with Concentration on

Duties & Liabilities of Trustees

Sukhamrit Singh

Roll Number -A3256118031

Section-A

LL.B(H) (2018-2021)
Q1. Sir what is the origin of trusts?

A1. There is confusion about the origin of trusts and trust law as we know it comes from England but
some say that, the English borrowed it form the Romans. The general idea is that It is an English
common law concept to do with the crusades when the knights left their land in the hands of trusted
people in case they never returned from battle." The ‘trusted people’ (usually the church who
turned out to be very untrustworthy and kept a lot of it for themselves) having an obligation to pass
on the land to the rightful heir, but this is just superficial knowledge of trusts. In fact, it can be
argued that the trust concept did in fact have its origins in Roman civil law and that the trust-like
devices that developed through the common law of England actually originated in Rome.

Roman law has the notion of trustees, and of trustee duties and obligations, with respect to property
in the form of two trust-like devices, fideicommissum  and fiducia.

The fideicommissum  developed as an extra-testamentary means of a person being able to dispose of

property on his death to X who in turn was under an obligation on the happening of a certain event
(e.g. his death or re-marriage) to pass on the property to Y. In fact, Y, could also be under an
obligation to pass on the property as a part of this chain.

Also, it didn’t have to be the specific property, provided they passed on value – something you can
see in a modern day trust with a portfolio of shares, for example, and a trustee’s power of
conversion.

There were two types of fiducia  and you will immediately see a likeness to modern day.

The fiducia cum amico under which property was transferred to a friend e.g. for safekeeping until
the transferor returned (which sounds like a knights conveyance of land and castle to a friend while
off on a crusade to me); and the fiducia cum creditore  under which property was transferred to a
creditor as security for performance of some obligation, subject to being re-transferred to the
transferor on completion of the obligation (seen as security for a bank loan today perhaps).

The transferee had to take reasonable care of the property and to account for any profits arising
from the property, while the transferor had a right to compensation if the transferee refused to re-
transfer the property or gave it to another person

Q2. What is Trust?

A2. Trust property refers to assets that have been placed into a fiduciary relationship between a
trustor and trustee for a designated beneficiary. Trust property may include any type of
asset, including cash, securities, real estate, or life insurance policies. Trust property is also referred
to as "trust assets" or "trust corpus.

Trustor is also known as author of trust, who reposes the trust. Trustee is the person who accepts
the confidence. Instrument through which trust is conveyed in know an instrument of trust

Definition of trust according to Indian Trust Act 1882- Section 3. A “trust” is an obligation annexed to
the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or
declared and accepted by him, for the benefit of another, or of another and the owner

Generally there are two types of trusts

 1. Public Trusts

2. Private Trusts

Q3. For what Purposes can a Trust be created?

Trusts are generally formed or created to fulfill any or more of the following objectives, the list not
being Exhaustive:

1. For discharge of the charitable and/or religious sentiments of the author of settlor of the
trust, in a way that ensures public benefit

2. For claiming exemption from Income tax U/s 10 or 11, as the case may be, in respect of
incomes applied to charitable or religious purposes

3. For the welfare of the members of the family and/or other relatives, who are dependent on
the settlor of the trust

4. For the proper management and preservation of a property;

5. For regulating the affairs of a provident fund, superannuation fund or gratuity fund or any
other fund constituted by a person for the welfare of its employees

Q4. How to create a Trust in India?

The Indian Trusts Act can only deal with the creation, management and extinguishment of Private
Trusts

The creation of trust is contingent on the premise that it made for a lawful purpose. To know lawful
purpose one has to look into the statute (S4) It is a negative definition and tells that every purpose is
lawful except those expressly mentioned to be unlawful, they being:

1. Forbidden by law {carrying on smuggling and support settlor’s children out of the proceeds}
2. If permitted, would defeat provisions of any other law {Trust disposing of property contrary
to S114 Indian Succession Act}
3. Fraudulent
4. Injuring the property or person of another
5. Against Public Policy or Morality according to the Court {training female foundlings as
prostitutes}

Formalities for the creation of a Trust (S.5)

Unlike English Law prior to 1677 a trust could be created without deed, without writing, without
formalities, by word of mouth and no particular words being necessary but after the enactment of
the Statute Of Frauds a Trust must be Manifested and proved, by writing and signed by the author.

India S.5. Deals with the creation of trust , being a distinct way for the creation of a trust of movable
property and immovable property

Immovable property- A valid trust can be made by a testamentary or non-testamentary document.

By a non-testamentary instrument, document has to be registered, in writing and signed by either
settlor or trustee, or by the will of the author of the trust or the trustee. The will need also needs to
be registered.
Movable Property- Movable property trust has also to be written, signed and registered, or by
transfer of ownership to trustee. Rule not applicable if would lead to fraud, which means property
obtained by fraudulent representation will be held in trust.

When is a Trust Created (S.6)

After fulfilling the registration requirements (unless the trust is declared by will or the author of the
trust is himself to be the trustee) and transfers trust property, a trust is created when the author of
the trust with indicates reasonable certainty by words or acts

1. an intention on his part to create thereby a trust

2. the purpose of the trust
3. the beneficiary
4. the trust-property

A rule was device in the English case of Knight v. Knight which laid down that three things are
necessary for the creation of a trust

1. Certainty of words/intention
2. Certainty of subject-matter
3. Certainty of Object

1.Certinity of Intention- the words used to construe a trust must be imperative. If intention can be
made out that a trust was t be created then no particular form of expression in necessary. A term
trust might not even be used in a trust deed yet a trust may exists as court look at the intent rather
than the form. If the intention to create a trust, the purpose of it, the beneficiaries to it, and the
trust property is indicated by the settlor along with the transfer of trust property to the trusty with
certainty then a trust has taken form.

2. Certainty of Subject Matter- property of any kind whether movable or immovable can be subject
matter of the trust but a mere beneficial interest under a subsisting trust can’t be subject matter in
India (U.K it can) as in India equitable interest is not recognized. A trust of ‘mere expectancy’ of
property not transferable under S.6 of Transfer of property Act is not possible in India like:

1. Spes Sucessionis
2. A public office
3. Pay of public office
4. Right to sue
5. Future Maintenance

3.Certanity of object (S.8)- Certainty of object or the beneficiaries is also necessary for the validity of
a trust except when it for charity . A uncertain non charitable trust is non est.

Example of non certainty of object (property) is- A bequeaths certain property to B, desiring him to
divide the bulk of it among C’s children. This does not create a trust, for the trust-property is not
indicated with sufficient certainty.

Example of Certainty of object is- A bequeaths certain property to B, “having the fullest confidence
that he will dispose of it for the benefit of C. This creates a trust so far as regards A and C.

In Bhaidas v. Bai Gaulam, a hindu testator bequeathed his estate to wife as sole executrix, making
her owner and laid condition that whatever remained of property would go to the testators 2
daughters, as the executrix may like. The trust for daughters failed as the subject matter was
uncertain because of the words ‘whatever may remain’.
Who may create Trust (S.7)
The capacity to create trust is co-extensive with that of holding, acquiring and disposing a legal or
equitable interest in property and can be done by

1. Sui juris person a person competent to contract ie a person u/s 11 of Indian Contract act
Every person is age of majority according to the law to which he is subject , and who is of
sound mind and is not disqualified from contracting by any law to which he is subject
2. A minor or on his behalf, with permission of a principal court of original jurisdiction

But subject to the approval from a High Court or District Court.

Who may be beneficiary(S.9)

Every person capable of holding property can be a beneficiary. Meaning minor and also child in
womb can be a beneficiary

Who may be Trustee(S.10 & S.60)

Every person who can hold can be a trustee, but if the trusts requires exercise of discretion then a
person competent to contract can be a trustee.

Persons competent to be trustees

1. A Corporation is capable of being a Trustee, it is a corporation is capable of accepting the

ownership of property with an obligation annexed to the ownership for the benefit of
another it can be a class of persons, however, there can be no objection to a corporation
acting as a trustee.
2. An Alien can be a trustee under the English law, however, it is not applicable under the
Indian law.
3. A married woman can be a trustee.
4. An infant can act as a trustee. However a minor is incapable of holding a public trust.
5. A convict can act as a trustee.
6. An illegitimate child can act as a trustee.
7. An insolvent has the capacity to act as a trustee.

A person is free to accept trusteeship but not bound to accept it. Acceptance can be made by words
or acts that certify such acceptance by certainty.

Instead of accepting a trust, the intended trustee may within a reasonable time disclaim it and it
shall be prevent the vesting of such property in him.

Upon a bare perusal of S60 of the Act it tacitly recommends those persons who are incapable of
prudent administration & protection of property and it is the right of the beneficiary to have the
property well protected, preserved and administered . The following persons cant be trustees:

1. A person domiciled abroad:

2. an alien enemy:
3. a person having an interest inconsistent with that of the beneficiary:
4. a person in insolvent circumstances;
5. Subject to their personal laws, a married woman and a minor.

Q5. Trustees & their Duties

Trustee to Execute Trust(S.11)
A trustee is bound to fulfil:

1. The Purpose of the Trust

2. To obey the directions given by the trustee at the creation of the trust ( E.g.

Where the directions of the Author of trust are illegal, impracticable or manifestly injurious to the
beneficiaries, they need not be obeyed. Where the beneficiaries are competent to contract they may
make a departure from the original direction if they collectively consent to do so.

( E.g. A, a trustee of certain land for X, Y and Z, is authorised to sell the land to B for a specified sum.
X, Y and Z, being competent to contract, consent that A may sell the land to C for a less sum. A may
sell the land accordingly).

The court can also permit such departure and where the trustee is a minor an application can be
made to the court for such consent.

It is the fundamental duty of a trustee to follow the directions of the settlor & the purpose of the
trust. ( E.g. A, a trustee for B and her children, is directed by the author of the trust to lend, on B’s
request, trust-property to B’s husband, C, on the security of his bond. C becomes insolvent and B
requests A to make the loan. A may refuse to make it)

S11 lays down a principle, a trustee is to execute the trust as far as practicable, for the benefit of the
cestui que trust (beneficiaries), the beneficiaries can if all of them are sui juris and of common
consent then the will of the author can be overshadowed and beneficiaries can control the trust

In an English case, it was held that the Civil Court can permit departure from the trustors directions,
when

1. Circumstances exists that which were unforeseen by the author and hence are not provided
for
2. Where trustees are embarrassed by emergency
3. When consent of all beneficiaries can’t be taken as not all are competent to contract (sui
juris) or aren’t in existence

General Rules regarding a Trustee’s duties were summed up by Maitlad as

1. Bound to do act expressly bidden to do by the trust instrument

2. Anything he is expressly authorised to do
3. Efrain from doing acts which are forbidden by the deed
4. Do any act with the trust property with the ambit of the trust deed which a prudent man
would do

Trustee to Inform himself of the state of property (S.12)

Trustee is to get acquainted , with the nature and circumstances of the trust property. If necessary
to transfer the trust property to himself. Get in the trust money invested in insufficient or hazardous
securities.

Trustee to protect Title to Trust Property

It is one of Trustees primary duties to secure and put the trust property in a state of security. He has
to maintain and defend suits for the assertion and protection of it’s title and take due dillegance and
reasonable steps. If trust property is given to the author of the trust and the property is immovable
then it the duty of the Trustee to cause the instrument registered.

Trustee not to set up adverse title(S.14)

Fidelity is the foundation of a trust. A trustee can not at should not for himself or for another set up
or aid in the title adverse to the interest of the beneficiaries. His interest should not conflict with
that of the beneficiaries. He should not continue in such a situation. He can’t impeach the trust.

Care required by Trustee (S.15)

A Trustee is required to deal to deal with the trust property as though it were his own property and
the care required to be taken by him is that what an ordinary prudent man would put. And the
trustee is not bound to make god the loss or is responsible for the loss, destruction or detioration of
the trust property. A contract to the contrary intention can pin liability on him.

E.g.1 A, living in Calcutta, is a trustee for B, living in Bombay. A remits trust-funds to B by bills drawn
by a person of undoubted credit in favour of the trustee as such, and payable at Bombay. The bills
are dishonoured. A is not bound to make good the loss.

E.g.2 A, a trustee of two debts for B, releases one and compounds the other, in good faith, and
reasonably believing that it is for B’s interest to do so. A is not bound to make good any loss caused
thereby to B.

The trustee is to employ the highest degree of integrity and a reasonable standard of efficacy of
business in the management of the affairs of the trust and if he fails to do so he will be put under
onerous personal liability.

E.g.1. A, a trustee directed to sell the trust-property by auction, sells the same, hut does not
advertise the sale and otherwise fails in reasonable diligence in inviting competition. A is bound to
make good the loss caused thereby to the beneficiary

E.g.2 A, a trustee for B, in execution of his trust, sells the trust-property, but from want of due
diligence on his part fails to receive part of the purchase-money. A is bound to make good the loss
thereby caused to B.

E.g.3 A, a trustee for B of a policy of insurance, has funds in hand for payment of the premiums. A
neglects to pay the premiums, and the policy is consequently forfeited. A is bound to make good the
loss to B

Trustee’s Duty to convert perishable property (S.16)

Where the trust is created for the benefit of several persons in succession, and the trust-property is
of a wasting nature or a future or reversionary interest, the trustee is bound, unless an intention to
the contrary may be inferred from the instrument of trust, to convert the property into property of a
permanent and immediately profitable character.

Where an intention can be inferred from the trust deed that the trust property is to be enjoyed in
specie, then it shall be enjoyed in that sense only, but where so such intention is expressed it is the
duty of the trustee to convert the perishable property into a permanent nature so that profits from
it can be realised forthwith.

The rules governing investment are on the principle to strike a balance between provision of income
on the tenant with the life tenant and the preservation of the capital for the remainderman.
E.g. A bequeaths to B all his property in trust for C during his life, and on his death for D, and on D ’s
death for E. A’s property consists of three leasehold houses, and there is nothing in A’s will to show
that he intended the houses to be enjoyed in specie. B should sell the houses, and invest the
proceeds in Government Securities of the Central Government.

Trustee to be Impartial (S.17)

Where there are more beneficiaries than one, the trustee is bound to be impartial, and must not
execute the trust for the advantage of one at the expense of another. He is not to pick and choose
between the beneficiaries, his discretion is not to be applied in such a manner. It is for the trustee to
be impartial like lustitia, he should not favour a tenant for life by investing in more productive but
less secure property.

E.g. A, a trustee for B, C and D, is empowered to choose between several specified modes of
investing the trust - property. A in good faith chooses one of these modes. The Court will not
interfere, although the result of the choice may be to vary the relative rights of B, C and D.

Trustee to Prevent Waste (S.18)

Where the trust is created for the benefit of several persons in succession and one of them is in
possession of the trust-property, if he commits, or threatens to commit, any act which is destructive
or permanently injurious thereto(know as waste), the trustee is bound to take measures to prevent
such wate. Its simple meaning is that a life tenant can’t behave in a manner prejudicial to the
interest of the remainderman.

Trustee to maintain Accounts and Information (S.19)

Trustee is bound to maintain clear accurate and proper accounts of trust property and must be
prepared to produce it when demanded by the beneficiaries. He should not conceal anything. He is
also bound to render such accounts in respect of the state of the trust property. He is also entitled to
get his accounts examined on completion of his duty. He can’t use illiteracy as a defence for his fault.

Investment of trust Money (S.20, S.20-A, S.21, S.22)

These sections cast a duty upon the trustee to invest the trust property when it being money and
not immediately needed, into securities specified in these sections or list of securities given under
Official Gazette published for the aforesaid purpose.

When a time is specified for the selling of securities it should be done so with that period, unless a
valid and justifiable reason to act otherwise, and if the trustee sells it beyond the specified time, the
burden of proof that the beneficiary has not been prejudiced is on the trustee to show. If a Court
gives the nod to sell securities beyond specified time, the burden of proof of showing prejudice
rests on the beneficiary.

E.g. A bequeaths property to B, directing him with all convenient speed and within five years to sell
it, and apply the proceeds for the benefit of C. In the exercise of reasonable discretion, B postpones
the sale for six years. The sale is not thereby rendered invalid, but C, alleging that he has been
injured by the postponement, institutes a suit against B to obtain compensation. In such suit the
burden of proving that C has not been injured lies on B.

The property of the trust must be invested prudently.

Q6. Trustees and their Liabilities

Liability for a breach of trust by a trustee is a serious breach of his fiduciary duty and he can be
penalised in civil as well as Criminal law (S.405 Indian Penal Code). Liabilities of trustees are given
under Section 23 to Section 30 of Indian Trusts Act.

Liability for breach of trusts (S.23)

Breach of trust means , failing to do what a trust requires to do. It regards not only to commission of
an act not supposed to be done but also to omissions. The breach of trusts range from fraudulent
conversion of trust funds, to technical failures that injure nobody.

A breach of trust arises and consists of an Improper act, neglect, default, omission in respect of
beneficiaries interest or trust property.

Where the trustee commits a breach of trust, he is liable to make good the loss which the trust-
property or the beneficiary has thereby sustained. However if the loss sustained to the property or
beneficiary is due to fraud induced by the beneficiary, the beneficiary has concurred on the breach
or has reluctantly accepted the breach then the trustee shall not be liable.

Depending upon the type of breach the trustee is liable to be paying interest as penalty either by
simple interest (where he has actually received interest, exception delay in paying trust money)

& in some cases compound interest (failure to apply trust money into securities)

E.g The instrument of trust directs the trustee to invest trust-money in any of such securities and to
accumulate the dividends thereon. The trustee disregards the direction. He is liable, at the option of
the beneficiary, to be charged either with the amount of the principal money and compound
interest, or with the amount of such securities as he might have purchased with the trustmoney
when the investment should have been made, together with the amount of the accumulation which
would have arisen from a proper investment of the intermediate devidends.

Liability of Trustee can’t be set-off (S.24)

A trustee liable for breach of trust can’t set off one portion of trust property against his liability from
a gain which has accrued to another portion of trust property through another and distinct breach of
trust.

In cases where there are more than one transactions and a loss results in one and gain in another, a
trustee can’t set of the loss from the gain obtained in another transaction , however if the loss
sustained and the gain accrued are arising from the same transaction then the same is liable to be
adjusted

Non- Liability of trustee for predecessor’s default (S.25)

Where a trustee succeeds another, he is not, as such, liable for the acts or defaults of his
predecessor, in certain cases he is not even liable for the default of his co-trustees.

Non- Liability for Co-trustees Defaults (S.26)

A trustee is not as such liable for a breach of trust committed by his co-trustees.

Except

1. For protection of Title

2. Degree of care from trustee
3. Delivering property to co-trustee without seeing to its proper application
4. Allowing co-trustee to receive money and not follow up (make due inquiry) or permits him
to keep the proceeds longer than required { A bequeaths certain property to B and C, and
 directs . ahem to sell it and invest the proceeds for the benefit of D. B and C accordingly sell
the property, and the purchase-money is received by B and retained in his hands. C pays no
attention to the matter for two years and then calls on B to make the investment. B is unable
to do so, becomes insolvent, and the purchase-money is lost. C may be compelled to make
good the amount.}
5. Where he has knowledge and suspicion of a breach of trust from co-trustee and actively
conceals it or doesn’t protect the beneficiaries interests.

Several Liability of Co-Trustee (S.27)

Co-Trustee committing a breach of trust or enabling other to commit a breach of trust , make
each one liable to the beneficiary for whole of the loss so occasioned. Each is liable to contribute
towards the loss.

The trustee paying on behalf of remaining trustees can compel the other to make good such loss
sustained by trustee.

Non- Liability of trustee paying without notice of transfer by beneficiary (S.28)

When property of beneficiary vests in another person, and trustee being unaware of the vesting
transfers , pays or delivers the trust property to the person who would actually have been entitled to
receive such property in the absence of such vesting, the trustee is not liable for the property so
paid.

Indemnity of Trustees (S.30)

This sections limits the liability of the trustees to the limit of the money, stocks, funds and securities
that the trustee actually receives and he is not accountable for the money which other trustees
receive and shall not be answerable for any banker, broker or other person in whose hands any trust
- property may be placed, nor for the insufficiency or deficiency of any stocks, funds or securities,
nor otherwise for involuntary losses.

Conclusion
The Trust is a creation of law where even after the transfer of property the transferor can exercise
his will over the subject property and can also rule over the property after his death which is
contrary to the concept of rule against alienation, an ideology behind Transfer of Property Act,

It gives tax benefits and is way to save on wealth tax.

Trusts can ensure that assets are professionally managed across generations and distributed in line
with the grantor’s intentions. Trusts can, among other things, remove assets from one’s estate, carry
out charitable intent, reduce income taxes, protect beneficiaries from spendthrift propensities,
protect assets from becoming marital property in a divorce, protect assets from creditors, and
provide lifetime income to one or more beneficiaries while providing the remainder interest to
another generation of beneficiaries. 

Role of a trustee is a pivotal one but he is overburdened, after discussing the provisions of the
aforesaid sections