9 Key Differences Between Public Trust and Private Trust
Table of Contents
Introduction
In a trust, the title of one person’s property or assets is transferred to another, the trustee, for the benefit of a third party, referred to as the beneficiary, through a fiduciary relationship. This person is known as the trustor or settlor.
The property of the trustor is legally protected by this arrangement. A trust deed or other instrument establishes a trust, which must always have a legitimate purpose. Trusts fall into two main categories: private and public. Their nature and breadth are where they diverge most from one another.
Establishing a trust of any kind necessitates a meticulous legal structure to safeguard the interests of all stakeholders. We shall examine the main distinctions between private and public trusts in this blog.
Public Trusts
Public trusts are created for the benefit of the general public and with benevolent intentions. Although several states in India have passed their own public trust laws, there is no federal legislation in the country that particularly addresses public charitable trusts.
The majority of Indian states do not, however, have distinct trust laws. NGOs can only be established by public trust legislation. While states like West Bengal, Jharkhand, and Bihar do not actively register public trusts, states like Rajasthan and Madhya Pradesh have separate state-level public trust acts.
Organizations registered as ‘Societies’ in Gujarat and Maharashtra are by default also registered as trusts. Although there is only one standard form for creating a trust, it can be set up to work in a variety of ways. A sizable section of the public benefits significantly from public trusts, or society.
Private Trusts
A private trust is enforced by its beneficiaries and is made for a person’s close friends, relatives, or neighbors. This kind of trust is usually meant for a select number of people, and the beneficiaries are known to be the trustor’s friends, family, or relatives.
The creation of a private trust guarantees that assets or resources are utilized only for the benefit of the named beneficiaries, with the trustee administering the assets in accordance with the conditions of the trust.
Private trusts guarantee that the trustee manages the assets according to plan and offer a legal basis for transactions. Private trusts come in three primary varieties:
Revocable Trust: The trustor is still able to alter or end the trust’s conditions.
Irrevocable Discretionary Trust: The trustee may determine which beneficiaries and to what extent they receive assets.
Irrevocable Non-Discretionary Trust: The beneficiaries and the quantities of the assets are designated by the trustor.
The beneficiary list of all private trusts is determined by the trustor, who also makes sure the trust operates legally to benefit the intended group.
Difference between Public and Private Trusts
| Feature | Public Trust | Private Trust |
| Legislative Governance | Governed by laws enacted by the state where established. | Governed by the Indian Trust Act, 1882. |
| Beneficiaries | Uncertain, many, and not specifically known. | Known and specific beneficiaries, generally relatives, friends, or family of the trustor. |
| Trusteeship | Managed by a board of trustees. | Administered by a limited number of appointed or managing trustees. |
| Duration and Preference | Generally more permanent and given preference over private trusts. | Generally of a more temporary nature. |
| Registration Requirements | Mandatory registration for immovable property; desirable for movable property for tax exemptions. | Registration is not needed, even for immovable property. |
| Types of Trusts | Charitable and Religious. | Revocable, Irrevocable Discretionary, and Irrevocable Non-discretionary. |
| Distribution of Assets After Death | Assets do not automatically pass to other entities; dependent on legal documents like wills. | Assets pass to heirs in the absence of a will. |
| Purpose and Scope | Created for the benefit of the public as a whole. | Established for the benefit of private individuals. |
| Transparency and Inspection | Open for inspection; anyone can scrutinize the management and purpose. | Norms are private; only beneficiaries, lawyers, and the trustor have access. |
Conclusion
The purpose of establishing a trust is to make the transfer of assets easier for recipients. Private and public trusts are the two different categories of trusts. The general public’s welfare and the promotion of philanthropic endeavors are the goals of public trusts.
Private trusts, on the other hand, are created by the trustor for the benefit of particular people listed in the trust deed. Public trusts are distinguished from private trusts by a number of features. Researching Indian trusts and their applications requires an understanding of these distinctions.
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