How to create a Trust in Bangladesh?

A trust is a legal device which imposes an obligation on one person, known as the trustee, to hold a property for another. The person who creates a trust is known as the 'settlor' in case of inter vivos trust and 'testator' when the trust declared is a testamentary trust, i.e. a trust declared in a will. The person who has the obligation to hold the property and execute the purpose of the trust is called the 'Trustee' and the person for whose benefit the trust is created is known as the 'beneficiary'.

A trust can be created to achieve a charitable object. For example, a person can create a trust for advancement of education or relief of poverty.

In Bangladesh, the Trusts Act, 1882 lays out the procedure for formation of a trust. The Act provides the criteria for the settlor, trustee and beneficiary. Section 6 of the Act provides that a trust is created when the author of the trust indicates with reasonable certainty by any words or acts.

(a) an intention on his part to create thereby a trust,

(b) the purpose of the trust,

(c) the beneficiary, and

(d) the trust-property

Therefore, the aforesaid elements must be present for creation of a valid inter vivos trust. The trustee must accept the trust. In case of a trust declared over a moveable property, the said property has to be transferred to the trustee, which is also known as constitution of a trust.

The trustee has the obligation to execute the trust or fulfill the purpose of the trust.

What formalities are required to create an inter vivos trust?

A trust concerning moveable property can be declared orally or in writing. No formalities are required provided the trust is declared in accordance with section of the Act.

If the subject-matter of the trust is an immoveable property, it must be in writing and signed by the author of the trust/ settlor or the trustee and registered. There is also a requirement for registration of the trust deed or instrument under section 17(1) of the Registration Act, 1908. If the trust concerning immoveable property is not registered, it is invalid by section 5 of the Trusts Act, 1882.

A trust which has a charitable object may be registered under the Societies Registration Act, 1860. An application can be made to the Registrar of Joint Stock Companies and Firms (RJSC) with the draft Articles and Memorandum of Association to obtain registration as a Society. A minimum of 7 (seven) person is required as members or trustees for registration under the Societies Registration Act, 1860. If a trust is registered under the Societies Registration Act, 1860 it creates a legal entity.

The following societies may be registered under this Act: Charitable societies, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of painting and other works or art, collections of natural history, mechanical and philosophical inventions, instruments, or designs.

Distinction between a Trust and Foundation

A trust is strictly governed by the Trusts Act, 1882 whereas a foundation is generally created under the Societies Registration Act, 1860. A trust can be set up with one person as a trustee whereas a minimum of seven person is required as members to obtain registration of a foundation under the Societies Registration Act, 1860.

Trustees are subject to the obligations under the Trusts Act, 1882.

Implied Trust and Constructive Trust

By section 88 of the Trusts Act, 1882 where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

Liability for breach of trust

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, unless the beneficiary has by fraud induced the trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with full knowledge of the facts of the case and of his right as against the trustee. Where a trustee commits breach of trust, a civil suit can be instituted against him claiming damages subject to the provisions of the Limitation Act, 1908.