A trust is a particular kind of fiduciary relationship established between the trustor and the trustee. Until the recipient is qualified to get possession of the property, the trustee holds it. The goal of the trust’s creation is to protect the trustor’s assets. The establishment of trust guarantees that the assets of the trustor are dispersed in accordance with his preferences. A trust can be established to save time, stop pointless conflicts, lessen paperwork, and aid in the prudent administration of the trustor’s assets. In this article, we will emphasize the key difference between Public Trust and Private Trust.

What is a Trust?

A trust is defined as “a duty attached to the possession of the property and growing out of a confidence reposed in and accepted by the owner or declared and acknowledged by him, for the benefit of another, or of another and the owner” under section three of the Indian Trust Registration Act, 1882. To put it another way, it’s just a simple transfer of property from one person (the Settlor) to another (the “trustee”), who then manages it for the benefit of a third party (the “beneficiary”). De jure ownership of the assets should be transferred from the Settlor to the Trustee. Trust is the second most popular registration method in India.

What is Public Trust?

For the benefit of the general good, Public Trust was established. There isn’t an all-India Level Act that fits public, charitable trusts. Numerous Indian states have passed General Public Trust Act. In contrast, there is no trust legislation in the majority of Indian states. Only in accordance with a public trust statute may an NGO be formed. Rajasthan and Madhya Pradesh both have independent state-level public trust acts. States like West Bengal, Jharkhand, and Bihar don’t actively pursue public trust registration. There is only one way to create trust. An equivalent, however, has the flexibility to function in a wide range of circumstances. 

What is a Private Trust?

A trust created for a person’s family that is enforceable by the beneficiaries is considered a private trust. Usually, this Trust is intended for close friends, family members, and neighbors. Personal trusts may choose to have actual beneficiaries as one of their possibilities. Additionally, the establishment of a private trust gives transactions a legal form. It makes sure that resources or property are only used for the benefit of designated beneficiaries, and the trustee requires that it be handled in accordance with the plan.

Difference between a Public Trust and Private Trust

The following are the few difference between a Public Trust and Private Trust:

1. The Indian Trust Act, of 1882^[1] governs Private Trusts, whilst state laws issued in the state where they were created or incorporated govern Public Trusts. This is the main legislative distinction between the two.
2. The most significant distinction between a public trust and a Private Trust is that the beneficiaries of a Public Trust are unknown, numerous, and unpredictable, but in a Private Trust, the beneficiaries are known and certain, such as close friends or relatives of the trust’s creator.
3. In terms of trustees, Public Trusts and Private Trusts differ in that the former have boards of trustees while the latter only has a small number of appointed or managed trustees.
4. More long-lasting than individual trust is Public Trust. And for this reason, Public Trusts are preferred to Private Trusts.
5. Even in cases of immovable property, the registration of Private Trusts is not necessary, whereas, for Public Trusts, registration is necessary or desirable in cases of movable property and is required in cases of immovable property under section 11 of the Income Tax Act of 1961 in order to qualify for tax exemptions.
6. Public Trusts and Private Trusts differ in terms of types in that Public Trusts can be either charitable or religious, whereas private trusts can be either revocable, irrevocable discretionary, or irrevocable non-discretionary.
7. In a Private Trust, when a person dies, their assets or money pass to their heirs even if they don’t leave a will behind, unlike in a public trust where none of the deceased person’s possessions or funds transfer to any of the other entities unless specifically stated in a will or other legal document.
8. Public Trust is created for the advantage of the public at large, whereas Private Trust is created for the benefit of an individual. This is another distinction between Public Trust and Private Trust.
9. The Public Trust is available for examination at any time, and anyone is welcome to go there. Concerns can be voiced about the trust’s administration and goals. In the case of Public Trust, there is transparency, effectiveness, and value. The rules of Private Trusts are confidential, and only the beneficiaries and their attorneys are permitted to know about them. Only the will’s owner is permitted to review them, and anyone who is not a member of their immediate family will not be able to read them.

Conclusion 

Trust is established to enable the transfer of assets from one person to another. Private Trust and Public Trust are the two types of trusts. Public Trusts are established to encourage charitable deeds and are advantageous for the general populace. Private Trusts are established by the trustor for the benefit of those people who are named in the trust deed. There are several characteristics that set public trusts apart from private trusts when comparing the two. When researching Indian trusts and their application, one should be well aware of these differences. Seek professional advice to get more information regarding Public Trust and Private Trust. You can also reach Bizadvisors.io.

Read our article:Benefits of Trust Registration in India