A

Project File
On
RIGHTS AND LIABILITIES OF THE BENEFICIARIES

Submitted in partial fulfilment of B.Com LL.B

Semester- VIII

SUBJECT:- EQUITY AND TRUST

SCHOOL OF LAW

GURU GHASIDAS

VISHWAVIDYALAYA

Submitted to : Submitted by :

Mr. Ajay Singh sir Pramod Tiwari

(Assistant Professor) B.Com LLB (8th sem)
 DECLARATION

I, PRAMOD TIWARI, ROLL. NO. 16002134, B.Com.LL.B

8THSemester, OF GURU GHASI DAS UNIVERSITY does hereby declare that,
this project is my original work and I have not copied this project or any part
there from any sources without any acknowledgement. I am highly indebted to
the author of the book that I have preferred in my book as well as all the writers
of the articles and the owner of the information taken from website to it. It is
only because of their contribution and proper guidance of my faculty adviser
MR. AJAY SINGH Sir, that I was able to gather light on the subject.

Pramod Tiwari
ROLL.NO.-16002134
B.Com.LL.B (8TH SEMESTER).
 CERTIFICATE

I am too glad to submit this project report on “RIGHTS AND

LIABILITIES OF THE BENEFICIARIES” as a part of my academic
assignment. This project is based on research methodology. It further studies
making sources and method of research methodology and further discusses the
interview method. I hope this would be significant for academic purpose as well
as prove information to all readers.
Here through I declare that this paper is an original piece of research and
all the borrowed text and ideas have been duly acknowledged.

SUBMITTED BY SIGNATURE OF FACULTY

PRAMOD TIWARI
 ACKNOWLEDGEMENT

I would like to express my earnest and deepest gratitude to Mr. Ajay

Singh , faculty of EQUITY AND TRUST, for giving me opportunity to do a
project on such a important topic of “RIGHTS AND LIABILITIES OF THE
BENEFICIARIES”. I am grateful for the assistance, guidance and support that

were extended during the course of excellent research. I thank my parents and
my friends for their moral support and love throughout my research work and
projects operation. Above all I thank the God almighty for the blessing me with
the health vitality to complete this projects.

PRAMOD TIWARI
 INTRODUCTION

A trust is a relationship whereby property (real or personal, tangible or

intangible) is held by one party for the benefit of another. A trust conventionally
arises when property is transferred by one party to be held by another party for
the benefit of a third party, although it is also possible for a legal owner to
create a trust of property without transferring it to anyone else, simply by
declaring that the property will henceforth be held for the benefit of the
beneficiary. A trust is created by a settlor who transfers some or all of his
property to a trustee who holds that trust property (or trust corpus) for the
benefit of the beneficiaries (archaically known as the cestui que use, or cestui
que trust). In the case of the self-declared trust, the settlor and trustee are the
same person. The trustee has legal title to the trust property, but the
beneficiaries have equitable title to the trust property (separation of control and
ownership). The trustee owes a fiduciary duty to the beneficiaries, who are the
"beneficial" owners of the trust property. (Note: A trustee may be either a
natural person, or an artificial person (such as a company or a public body), and
there may be a single trustee or multiple co-trustees. There may be a single
beneficiary or multiple beneficiaries. The settlor may himself be a beneficiary.)
The Indian trust Act 1882, is an act to define and amend the law relating
to Private Trusts and Trustees. The trust can be and has been applied as a device
for accomplishing many different purposes As Maitland observes, “of all
exploits of equity the largest and the most important is the invention and
development of the trust.” According to him, the trust ‘is an institute’ of great
elasticity and generality; as elastic, as general as contract.”
 Trust

The Trusts Act in Sec.3 defines a trust: "Trust" is an obligation annexed to the
ownership of property, and, arising out of 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.

There are three features:

i) The obligation arises out of the ownership of property which becomes vested
in a person called the "trustee"

ii) The obligation arises out of confidence reposed in & accepted by the owner.

iii) The obligation is to use the property(called the trust property)- for the
benefit of the "beneficiary"- (called ces qui trust). Hence, the trustee, the trust
property and the beneficiary are the three essentials that constitute a trust.

eg. A, (the author of the trust) transfers his property to T, the trustee, in trust to
apply the income or the profits to provide medical facilities to blind persons.
This is a valid trust.

Essentials:

The essentials of a valid trust are:

i)The purpose must be lawful S.4

ii) Formalities to transfer the property must be followed S.5.

iii) The trust must be created with reasonable certainty. S.6

iv) The author of the trust must be competent to contract S.7

v) The beneficiary must have the capacity to hold the property

vi) Trust property must be transferable.

vii) The trustee must accept the trust.

 BENEFICIARIES

According to Sec 9 of Indian Trust Act 1886 “Every person capable of

holding property may be a beneficiary. A proposed beneficiary may renounce
his interest under the trust by disclaimer addressed to the trustee, or by setting
up, with notice of the trust, a claim inconsistent therewith.” Every private trust
must have a designated beneficiary or one so described that his identity can be
learned when the trust is created or within the time limit of the Rule of
Perpetuity, which is usually measured by the life of a person alive or conceived
at the time the trust is created. This rule varies from state to state, is designed to
prevent a person from tying up property in a trust for an unlimited number of
years. A person or corporation legally capable of taking and holding legal title
to property can be a beneficiary of a trust. Partnerships and unincorporated
associations can also be beneficiaries. Unless restricted by law, aliens can also
be beneficiaries.
 WHO CAN BE TERMED AS BENEFICIARIES
A class of persons can be named the beneficiary of a trust as long as the class is definite or
definitely ascertainable. If property is left in trust for "children," the class is definite and the
trust is valid. When a trust is designated for “family," the validity of the trust depends on
whether the court construes the term to mean immediate family in which case the class is
definite or all relations. If the latter is meant, the trust will fail because the class is indefinite.
When an ascertainable class exists, a author may grant the trustee the right to select
beneficiaries from that class. However, a trust created for the benefit of any person selected
by the trustee is not enforceable.
If the author's designation of an individual beneficiary or a class of beneficiaries is so
vague or indefinite that the individual or group cannot be determined with reasonable clarity,
the trust will fail. The beneficiaries of a trust hold their equitable interest as tenants in
common unless the trust instrument provides that they shall hold as joint tenants. For
example, three beneficiaries each own an undivided one-third of the equitable title in the trust
property. If they take as tenants in common, upon their deaths their heirs will inherit their
proportionate shares. If, however, the author specified in the trust document that they are to
take as joint tenants, then upon the death of one, the two beneficiaries will divide his share.
Upon the death of one of the remaining two, the lone survivor will enjoy the complete
benefits of the trust.
 RIGHT & LIABILITIES OF THE BENEFICIARY
(CES QUI TRUST)

A trust is an obligation, annexed to the ownership of property arising out of

confidence reposed in or accepted by owner for the benefit of another ; or
another or owner. Person who gets benefit is called Ces qui trust or beneficiary.
The beneficiary should have legal capacity to hold property.

Rights of the Beneficiary:

The general rule is that the beneficiary has no estate or interest in the trust
property. He has only the right to sue the trustee.

i) Rights to the rents & Profits:

The beneficiary has a right to the rents and profits, where the deed directs the
rents and profits are to be paid to the beneficiary.

ii) Right to specific execution:

The beneficiary has a right to have the intention of the author of the trust
"specifically executed" as per the trust deed. If the deed so directs, the
beneficiary or beneficiaries (who are legally competent) may require to get the
trust property transferred to him or them
(Exception a married woman cannot claim such a transfer)

eg. 500 security bonds are entrusted to the trustee, A, to accumulate the interest
and to pay the gross amount to B, the beneficiary on his attaining 21 years. B, at
21, may require the transfer of the entire property to him.

iii) Rights to inspect:

The beneficiary has a right to inspect and to take out copies of trust deed, title
deed, the accounts and vouchers etc after giving due notice to the trustee.

iv) Right to transfer beneficial interest:

The beneficiary, if legally competent, may transfer his interest inter vivos or by
will He may mortgage or deal with as his own property; This is subject to the
trust deed. A married woman has no such right.

v) Right to sue:

The rule is that a trust should not fail for want of a trustee. Hence, where no
trustees are appointed, or where all die, or disclaim or discharged under law, or
where for any other reason a trust cannot be executed or becomes impossible,
the beneficiary may institute-a suit in the court. The Court shall execute the
trust, until the trustees
are appointed.

vi) Right to have proper trustees:

A beneficiary has a right to proper trustees or for a proper number of. trustees,
subject to the trust deed. This right is essential as the cestui que trust depends on
the faith and integrity of the trustee. It is natural that it must be in the hands of
proper custodians of the confidence reposed in them. Persons disqualified:
Alien enemy, insolvent persons, persons domiciled abroad, a married woman
and a minor. Administration: Where the trust involves the receipt and custody
of money, there must be at least two trustees.

eg. B, a beneficiary proves that A, the trustee is in insolvent circumstances or

that he has improperly sold a part of trust property. B may obtain a receiver of
the trust property from the court.

vii) Right to compel to act:

The beneficiary has a right to compel the trustee to perform his duty and to
refrain him from doing any act which may result in a breach of contract. A, a
trustee is about to sell trust property, in violation of the trust deed, at a low
price. B, the beneficiary may sue for an injunction to restrain A from selling.

viii) Right to remedy against wrongful purchase by trustee:

Where a trustee has made a wrongful purchase of the trust property, the
beneficiary has a right to sue for a declaration that the property is a trust
property or to get retransferred to the trust.

ix) Doctrine of Tracing:

This means the beneficiary has a right to follow the trust property which has
gone to third persons, against the intentions of the trust. In such a case, he may
sue for a declaration that such a property is part of the trust property.

If such property has been disposed of and the money or other property can be
traced in the hands of the transferee or his legal representatives, or legatees etc.,
the beneficiary, has his rights as in the trust deed, and, hence, may get back the
property to the trust, if the property can be identified. A, trustee without
authority invests Rs.20,000/- in purchasing a piece of land. B, the beneficiary is
entitled to it.
Conversion: If the property is converted into another form,A transferee, who without notice of
trust buys or takes in good faith, for full consideration is protected.

Liabilities of Beneficiaries
The Trusts Act deals with the circumstances, wherein the beneficiary, as a privy
to the breach of trust, becomes liable. He is liable:

i) when he actually joins in the breach of trust,

ii) when he obtains advantage from a breach (without the consent of other
beneficiaries).

iii) when he becomes aware of a breach, but conceals it without taking any
steps.

iv) when he deceives the trustee and induces him to commit a breach.

Impounding:

In such a case, the interest of such a beneficiary may be impounded till the loss
to the trust estate is made good. Even if the interest is assigned, it may be
impounded. However, the transferee without notice, who takes for full
consideration in good faith is protected.
 CONCLUSION

A trust structure comes with certain inherent advantages. A trust provides the flexibility to be
set up in more than one form or in hybrid forms as per the requirement. A trust can be either
private or public. As opposed to a public trust, a private trust is a trust generally for the
convenience and support of individuals of families. Trust can be structured as revocable or
irrevocable.
A revocable trust can enable the settlor to exercise control over the property but can
be prone to clubbing provisions under the tax laws. An irrevocable trust can provide
safeguard against future creditor claims on the assets in case of bankruptcy, since the settlor
ceases to have the title to the trust property, yet at the same time enable indirect control over
the property through terms of the trust deed. This is one the prime benefits of a trust structure
which allows ring fencing of wealth, the downside, however, being the settlor losing
ownership.
Except for necessary governing provisions, the trust law provides enough flexibility in
creating and managing a trust. Any person competent to contract can create a trust and any
person capable of holding property can be a beneficiary including a minor. Any person
capable of holding property can be a trustee. A trust can be an efficient tool for succession
planning without the need for probate process through Court, thereby protecting privacy by
preventing public disclosure. Thus the rights , duties , and powers of the beneficiaries
provides an important part under the Indian Trust Act 1882.
 BIBLIOGRAPHY

1. www.lawteacher.net

2. www.legalservicesindia.com

3. Indian Trust Act ;bare act