You have probably heard the word trust in conversations about wealth, family, inheritance, and charitable work. A family may create a trust to hold and manage assets. A business family may use a trust as part of its succession planning. A charitable organisation may operate through a public trust.

But what exactly is a trust? And if you want to set one up in India, which type is appropriate for your purpose?

Broadly, trusts can be private or public, depending on who or what they are intended to benefit. A private trust is generally created for identifiable individuals or a defined group of private beneficiaries. A public trust is generally created for a public, charitable, or religious purpose.

This distinction matters because the purpose of the trust, its beneficiaries, governing law, registration requirements, and tax treatment can all differ.

This blog explains what a trust is, how private and public trusts differ, how they are taxed, and when each structure may be appropriate.

Key Highlights

• A trust is a legal arrangement in which property is held by a trustee for the benefit of another person or for a specified purpose.

• A private trust is generally created for identifiable beneficiaries, often family members or other specified individuals.

• A public trust is generally created for a public, charitable, or religious purpose rather than for specific private beneficiaries.

• The Indian Trusts Act, 1882 primarily governs private trusts and trustees. Public charitable and religious trusts are subject to the applicable state laws and other relevant legislation.

• Registration requirements depend on the nature of the trust, the property involved, the instrument creating the trust, and the applicable state law.

• Private trusts can be taxed differently depending on whether the beneficiaries and their shares are determinate or indeterminate.

• A trust may be created during the settlor's lifetime or, in appropriate cases, through a Will as a testamentary trust.

What Is a Trust?

A trust is a legal arrangement in which one person places property under the control of another person to be held and managed for the benefit of someone else or for a specified purpose.

Under Section 3 of the Indian Trusts Act, 1882, a trust is an obligation attached to the ownership of property arising from a confidence reposed in and accepted by the owner for the benefit of another. The person creating the trust is the author of the trust, commonly called the settlor. The person who accepts responsibility for managing the trust property is the trustee, and the person for whose benefit the trust is created is the beneficiary. Put simply: the settlor places property under a trust, the trustee manages it according to the terms of the trust, and the beneficiaries receive the benefit.

Trust property can include cash, investments, shares, immovable property, or other assets, depending on the purpose and terms of the trust.

For a private trust, the trust instrument generally sets out important details such as the trustees, beneficiaries, trust property, purpose of the trust, powers and duties of the trustees, and how the trust is to be administered.

What Is a Private Trust in India?

A private trust is generally created for the benefit of identifiable individuals or a defined group of private beneficiaries.

For example, a parent may create a trust for their children, grandparents may provide for their grandchildren, or a family may establish a trust as part of its succession and wealth-planning arrangements.

The Indian Trusts Act, 1882 is the principal central legislation governing private trusts and trustees. However, the exact legal and tax treatment of a private trust depends on how it is structured and the assets and beneficiaries involved. 

AasaanWill offers private trust structures for different purposes, including:

• Family Trust — for succession planning, special needs care, and multi-generational wealth transfer.

• Business & Asset Holding Private Trust — for purposes such as business succession, promoter shareholding, ESOPs, and structured asset holding.

What Is a Public Trust in India?

A public trust is generally created for a public, charitable, or religious purpose rather than for the benefit of specific private individuals.

Examples can include trusts established for charitable education, healthcare, community welfare, religious activities, or other recognised public purposes.

There is no single central statute that comprehensively governs all public trusts across India in the same way that the Indian Trusts Act, 1882 governs private trusts. The applicable legal framework can vary by state and by the nature of the trust. For example, Maharashtra has the Maharashtra Public Trusts Act, 1950, which provides for registration and regulatory oversight of public trusts to which the Act applies. 

A public trust may therefore be subject to state-specific registration and compliance requirements in addition to the requirements applicable under income-tax law.

AasaanWill's Charitable Trust service covers charitable trust formation and related registration and tax-compliance requirements.

What Is the Difference Between Private and Public Trust in India?

The key distinction is who or what the trust is intended to benefit.

The distinction is not simply about whether a trust has the word “family” in its name. The purpose, beneficiaries, structure, and applicable law determine how the trust is treated.

How Are Trusts Taxed in India?

The tax treatment of a trust depends on the nature and structure of the trust.

Private Trusts

For a private trust, taxation can depend on whether the beneficiaries and their respective shares are determinate or indeterminate.

Under Section 307 of the Income-tax Act, 2025, where the income of a trust is not specifically receivable for a particular beneficiary, or the beneficiaries' individual shares are indeterminate or unknown, the income may generally be taxed at the maximum marginal rate, subject to specified exceptions. The Act also contains special provisions for certain testamentary trusts and other situations. Accordingly, it would be incorrect to say that every specific private trust is simply taxed at the beneficiary's individual slab rate. The actual tax treatment depends on the structure and applicable provisions.

Public Charitable Trusts

Eligible public charitable or religious organisations may qualify for tax benefits under the Income-tax Act, 2025 if they satisfy the applicable registration, approval, application-of-income, and compliance requirements.

For example, a registered non-profit organisation can have nil taxable regular income where at least 85% of its regular income is applied or validly accumulated for charitable or religious purposes, subject to the conditions of the Act. Section 332 deals with registration of eligible non-profit organisations, while Section 354 deals with approval relating to donations. Donations to eligible approved organisations can qualify for deduction under Section 133, subject to the conditions of that section. 

Tax treatment can be technical, particularly for private trusts, so the structure should be reviewed with a qualified tax professional before implementation.

When Should You Use a Private Trust and When Should You Use a Public Trust?

The answer depends on what the trust is intended to achieve and who it is intended to benefit.

A private trust may be appropriate where the objective is to hold and manage assets for specific beneficiaries. Common situations can include providing for minor children, planning for a family member who needs ongoing support, managing family wealth across generations, or structuring the ownership and succession of certain business or investment assets.

A public trust may be appropriate where the objective is to pursue a charitable or religious purpose for the benefit of the public or a section of the public. Examples may include activities relating to education, healthcare, community welfare, religion, or philanthropy.

The appropriate structure depends on the purpose, beneficiaries, assets, governance requirements, and applicable legal and tax rules.

AasaanWill's blog on Trust Registration in India explains how trusts are structured and the registration considerations involved.

How a Will and Trust Can Complement Each Other

A Will and a Trust serve different purposes, but they can work together as part of a broader succession plan.

A Will sets out how a person’s assets should be distributed after their death. It can cover assets that remain in the person’s name and can also help ensure that their overall wishes are clearly documented.

A Trust, on the other hand, provides a structure for holding and managing assets for specified beneficiaries or purposes. Depending on how it is structured, a trust can help manage assets over time, provide for beneficiaries who may need ongoing support, or facilitate a planned transfer of family wealth.

For example, a family may use a Will to address the distribution of their overall estate, while a Family Trust is used to hold certain assets that need to be managed for children or other family members over a period of time. The trustee can then manage those trust assets according to the terms of the trust deed.

The right approach depends on the nature of the assets, the family’s objectives, the beneficiaries, and how the assets are intended to be managed and transferred. In many cases, a Will and a Trust are not alternatives — they can be complementary parts of a well-structured succession plan.

How AasaanWill Helps in Creating a Comprehensive Estate Plan For Your Family 

AasaanWill helps families and organisations structure trusts based on their objectives and beneficiaries. Our team assists with:

• Setting up a Family Trust for succession planning, special-needs care, and multi-generational wealth transfer.

• Setting up a Private Trust for business succession, asset holding, promoter shareholding, and ESOP-related structures.

• Setting up a Charitable Trust and assisting with applicable registration and tax-related requirements.

• Preparing a Will that can work alongside a trust where the overall estate plan requires both structures.

Conclusion

A trust is a legal arrangement under which property is held and managed by a trustee for the benefit of beneficiaries or for a specified purpose.

The key distinction between a private trust and a public trust is the nature of the beneficiaries and purpose. A private trust is generally intended for identifiable private beneficiaries, while a public trust is generally established for a public, charitable, or religious purpose.

The choice of structure should be based on what you want the trust to achieve, who should benefit, what assets are involved, and the legal and tax requirements that apply.

For families considering a trust as part of succession or wealth planning, AasaanWill can help structure the trust and, where appropriate, coordinate it with the rest of the estate plan.

Frequently Asked Questions

1. What is a trust in simple terms?

A trust is a legal arrangement where the settlor transfers property to a trustee to hold and manage, not for the trustee's own benefit, but for the benefit of the beneficiary. The trust deed sets out all the rules.

2. Who are the three parties in a trust?

Every trust has three parties. The settlor creates the trust and transfers property into it. The trustee manages the property under the rules in the trust deed. The beneficiary receives the benefit of the property.

3. What is the main difference between a private and public trust in India?

A private trust benefits specific named individuals, usually family. A public trust benefits the general public or a broad class of people. This difference determines the governing law, registration requirements, and tax treatment.

4. What is a private family trust in India?

A private family trust is set up to manage and protect family assets. Common uses include holding property for minor children, funding care for a dependent with special needs, and separating family wealth from business risk.

5. What is a private trust used for apart from family purposes?

A private trust for non-family purposes is used for business succession to employees, promoter shareholding, ESOPs, and asset protection from business creditors. AasaanWill's Private Trust service covers this structure.

6. What is a charitable trust in India?

A charitable trust is a public trust set up to benefit the general public through education, healthcare, poverty relief, environmental work, or religious purposes. It must register as an RNPO under Section 332 of the Income Tax Act, 2025, to claim tax exemption.

7. What is RNPO and what does it stand for?

RNPO stands for Registered Non-Profit Organisation. Under the Income Tax Act, 2025, public charitable trusts must register as RNPOs under Section 332 to claim income tax exemption and allow donors to claim deductions under Section 354.

8. Does a private trust need to be registered in India?

The registration requirements depend on the nature of the trust and the property involved.

For a private trust concerning immovable property, Section 5 of the Indian Trusts Act, 1882 generally requires the trust to be declared through a written and registered instrument, subject to the Act's provisions.

For trusts involving movable property, the requirements are different. A trust may be declared in writing or created by transferring ownership of the movable property to the trustee.

Therefore, the registration requirements for a private trust depend on the type of property and the manner in which the trust is created.

9. How is a private trust taxed in India?

Under the Income Tax Act, 2025, a specific private trust is taxed at the beneficiaries' individual slab rates. A discretionary private trust is taxed at the maximum marginal rate. Always confirm the current position with a chartered accountant.

10. How is a public charitable trust taxed in India?

A public charitable trust registered as an RNPO under Section 332 of the Income Tax Act, 2025 is exempt from income tax, provided it applies at least 85 percent of its income to the charitable purpose each year.

11. Can a private trust be converted into a public trust?

A private trust may, in certain circumstances, be restructured or converted into a public trust, but the process depends on the applicable state law. It generally involves changing the trust's purpose and beneficiaries so that it serves a public, charitable or religious purpose, followed by the required approval or registration with the relevant state authority.

The process and legal requirements vary by state, so a private trust cannot be converted into a public trust simply by amending the trust deed in every case.

12. What is a trust deed and why does it matter?

A trust deed is the document that creates the trust. It names the settlor, trustee, and beneficiaries, sets out the purpose, and defines how assets are managed and distributed. A poorly drafted trust deed is one of the most common reasons trusts fail or get challenged in court.

13. Can AasaanWill help set up all three types of trusts?

Yes. AasaanWill offers three dedicated trust services: Family Trust for succession and special needs care, Private Trust for business asset protection and ESOPs, and Charitable Trust for NGOs and philanthropic missions with full RNPO compliance.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. The information presented reflects the law as of the date of publication. For advice on your specific situation, please consult a qualified advocate.

"Protect your family's wealth with the right structure. Write a Will with AasaanWill today."