Duties and Liabilities of a trustee under Indian trusts Act, 1881

The word “trust” is used in common parlance as a word used to denote trust in one person by another. In India, the laws relating to private trusts are laid down under the Indian Trusts Act, 1882.

A trust is generally created for the benefit of a group of people/persons. For example, there are certain movable and immovable assets of an individual. The individual has children, but the children are currently unable to maintain such assets.

The father wants to create a mechanism by which his children properly enjoy the benefits of his property and at the same time maintain the property. In such a situation, the Father may choose to create a trust for his children. The Father here would be the Author, a trusted person whom the Father wants to appoint to provide benefits and maintain the property, such a person can be the Trustee and the children would be the beneficiaries.

There is a rich senior citizen who wants to establish an institute for the welfare of the poor and needy. Here such a person can create a trust for charitable purposes and appoint a suitable person as trustee.

In such a case, the beneficiaries would be the poor and needy people of the society.
A mutual fund is also a trust fund, where the administrator is generally an artificial person, i.e. a company.

In the case of the issue of bonds by companies, the creation of a trust fund and the appointment of a bond manager are required under certain conditions set by the Companies Act.

A Trustee is a person appointed within the Trust to manage the Trust’s assets. The trustee should be a person who is capable of holding property and is competent to enter into contracts.

The administrator can also be a company, which is an artificial person created by law. The trustee is expressly required to accept or disclaim the trusteeship, either expressly or through his actions. There can be more than one trustee in one trust.

The trustee is required to actually carry out the purpose of the trust as set out in the trust agreement. The Trustee is also required to follow the instructions of the Author of the Trust at the time of creation of the Trust.

However, the administrator is not obliged to follow these instructions if they are impractical or illegal.

The trustee is required to know the details, whereabouts and current status of the trust property and also to take appropriate measures to secure the trust property.

The administrator is obliged to defend all claims against the ownership right of the trust property and to take reasonable measures to exercise and protect the ownership right.

Since the trustee is entrusted with the trust property to hold it for the benefit of the beneficiaries, the trustee is expected and required not to create any title adverse to the beneficiary.

A good example to illustrate this point would be to suppose that a trustee is entrusted with immovable property and is bound to apply the rents and profits of such property to the beneficiaries. The administrator also has the right to sell such property.

The trustee is expected not to sell such property to himself or to any of his relatives or friends or a person of similar nature, as such action by the trustee would be adverse to the beneficiary and the trust factor on which the foundation of the trust is built would cease to exist.

The trustee is required to provide reasonable protection and is required to exercise the same care over the trust property as an ordinary person would apply to their own property.

However, the law provides that the trustee is not liable for loss caused to the trust property or the benefits arising therefrom if he had exercised the same care as an ordinary person would exercise in his property.

If the trust property is of such a nature that it would continue to deteriorate and lose value over time, the trustee is required to convert such property, i.e. sell it and convert it into cash proceeds and use these proceeds for the benefit of the beneficiaries. This duty is required of the administrator especially when the trust fund is created for the benefit of several persons in succession.

When a trust is created for the benefit of several beneficiaries, the trustee is required to apply the benefits derived from the trust property equally among the beneficiaries without being partial to anyone or any group among the beneficiaries.

If there are several beneficiaries of the trust and one or more of those beneficiaries commits or threatens to commit an act that would be contrary to the interests of the other beneficiaries and the trust generally, the trustee is required to take measures to stop such act by such beneficiary/beneficiaries.

The administrator is obliged to keep a clear and accurate account of the assets of the trust fund and always provide it to the beneficiary at the request of the beneficiary.

The law specifically states that if the trust property consists of money and the money does not need to be used immediately for the benefit of the beneficiaries, the trustee is required to invest the money in such instruments as the law provides. The Act provides for instruments such as promissory notes and other central government securities; in stocks or bonds of railroads or other government companies; in share certificates issued by Unit Trust of India etc.

Author: Ashvath Neelakandan,
Fourth Year Law Student at Chettinad School of Law

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