According to the Trusts Act, 1882, a trust is established when the author of the trust expresses the intention and purpose to create a trust, identifies a beneficiary, and specifies the trust property. In simple words, a trust is a legal obligation where one person (the author of the trust) places confidence in another (the trustee) to manage assets, rights, or interests for the benefit of a third party (the beneficiary). 

Private and Public Trusts in Bangladesh are primarily regulated under the Trusts Act, 1882, as well as other relevant laws relating to charitable and religious trusts. Moreover, there must be a definite intention to create the trust, such as for the education of poor children, medical purposes, charitable purposes, the establishment of a scholarship or school, or even for the benefit of a single individual or a specific group of people.

In this article, we will focus on the key aspects of private and public trusts in Bangladesh, providing a comprehensive guide on their objectives, key components, types, step-by-step registration procedure, and some Frequently Asked Questions.

Key Components of a Trust in Bangladesh

In any Trust, the following crucial factors must be present under the Trust Act 1882:

• Author/Settlor: The individual who is the owner of the property, creates the trust and reposes confidence in the Trustees.
• Trustee: The person or entity entrusted with managing the trust property in accordance with the Trust Deed who has fiduciary responsibilities.
• Beneficiary: The individual or group for whose benefit the trust is established. In private trusts, they are certain individuals whereas beneficiaries in public trusts are a part of the society.
• Trust Property: The assets legally held in trust which can be both movable and immovable, identified specifically.   
• Instrument of Trust: The legal document outlining the trust’s terms, responsibilities, powers and conditions in writing, registered under the Registration Act 1908.
• Valid Purpose: It is overlooked some times, but the purpose of the trust must be valid, legal, and enforceable.

Goals to Establish a Trust

A trust must have a lawful, specific, and well-defined purpose or goal. It may be established for education, medical assistance, charitable purposes, etc. Nonetheless, the legal basis of the trust is provided by the Trust Deed, which outlines its objectives, assets, property, and the duties of the trustees. In private trusts, the beneficiaries are specific individuals, whereas in public trusts, the beneficiaries are a broader section of society.

Types of Trusts in Bangladesh

Private Trusts in Bangladesh

Private Trusts: Key Features

• Appointed Beneficiaries: The beneficiaries are specific individuals, such as family members or a person you designate. 
• Private Asset Management: Assets belonging to a private trust are managed for personal or family use, thereby ensuring financial security.
• Confidentiality: Private trusts do not need to be registered (unless they involve immovable property), therefore they remain more discreet.
• Governance: Private trusts are mainly covered under Trusts Act, 1882 and have lesser legal formalities than public trusts.
• Limited Tax Advantages: Unlike a Public Trust, private trusts are not entitled to any tax exemption unless structured in specific manners.
• Restrictions: Private trusts must not violate rule against perpetuity, it should be ended when its purpose is fulfilled, it may be terminated on beneficiaries’ agreement, or through court’s order and the property reverts as specified in deed.

Public Trusts in Bangladesh

Public trusts are created for the benefit of the public in general or of a community. They are founded to provide services to the public good like schools, hospitals, orphanages, etc. These trusts involved charities that are set to benefit society as opposed to individuals.

Characteristics of Public Trusts:

• Must function with no profit motive: A charitable trust is a public trust that is created to be used for philanthropy, education, medical aid, religious activities or for any other charitable purpose.
• No Specific Beneficiaries: The trust is instead established to benefit a wider circle of individuals or a specific cause.
• Properly registered: Public trust should be properly registered for eligible for tax exemption under Bangladesh’s tax laws.
• Can accept donations and contributions from domestic and foreign sources, according to legal rules.
• Tax Exemptions: Most public trusts, particularly charitable public trusts, are eligible for income tax exemptions. To qualify for tax-exempt status, you have to field an application with National Board of Revenue (NBR).
• Public Trust Registration: For legal recognition and tax benefits, public trusts, specifically charitable trusts, need to be registered under the Registration Act, 1908.
• Regulatory scrutiny: Must report and comply with requirements. Public trusts have greater legal scrutiny. Public trusts are required to maintain proper accounts, financial records, and regular auditing to ensure accountability and transparency in the use of funds. The trust’s financial statements must be submitted to the relevant authorities, along with involving government oversight.

Step by Step Registration process of a Trust in Bangladesh

According to the Trust Act of 1882, the registration of a trust with movable property is not mandatory, but a trust involving immovable property is required to be registered. Below are the steps for the registration process:

Step 1: Prepare a draft trust deed

The trust deed is the basic document which governs any trust. It must include:

• Identities of settlor, trustee(s) and beneficiaries,
• Principal objects of the Trust.
• The powers and duties of the trustee(s).
• MoD (Method of Distribution or Management of assets)
• Dispute resolutions
• Dissolution clauses.

Note: Choosing the Trustees is important for all aspects. All trustees need to be legally competent and capable of overseeing the affairs of the trust. Among their responsibilities are fiduciary duties, investment management, and compliance.

Step 2: Sign the Trust Deed

Before placing for registration, the trust deed must be signed by the author and the trustee, along with two witnesses signing the last page of the trust deed.

Step 3: Determine the authority for trust deed registration

Your Trust Deed should be registered. According to Section 28 of the Registration Act, 1908, a trust deed for immovable property must be registered at the Sub-Registrar’s office in the area where the property is located. On the other hand, a trust deed for movable property can be registered either where the trust operates or where its office is located.

Step 4: Get your Trust Deed Stamped

Prior to registration, a trust deed is to be duly stamped in accordance with the provisions of the Stamp Act, 1899. Whether you need to pay stamp duty depends on the type of trust and how much the assets are worth. 

The registration fees for a trust deed are listed in the official Gazette (S.R.O. No. 254-Law/2014), issued under Section 78 of the Registration Act, 1908. According to this, if the trust’s value is BDT 5,000 or less, a 2% ad valorem fee applies, with a minimum charge of BDT 100. For trusts valued over BDT 5,000, the fee is 2% of the total value. 

Furthermore, Schedule I of the Stamp Act of 1899 provides for the stamp duty which is 2% of the consideration applicable to trust deeds. 

Step 4: Apply for a Certified Copy

To get a certified copy of the registered deed, the author must fill out and sign the prescribed form and submit it to the Sub-Registrar’s office. Once all steps are completed, the registering officer will issue a receipt for the submitted documents. The Sub-Registrar will then verify the documents and officially record the deed in the registration books.

Step 5: Registering Under the Societies Registration Act, 1860

A charitable trust may also be registered under the Societies Registration Act, 1860. To do this, an application must be submitted to the Registrar of Joint Stock Companies and Firms (RJSC) along with the draft Articles and Memorandum of Association. For registration under this Act, at least seven (7) members or trustees are required. Check our guide on this>.

Once registered, the trust gains legal entity status, allowing it to operate formally. However, there will be a lot of compliance issues involved.

Step 6: Operating as a Trust in Bangladesh

Generally, the registration procedure typically takes approximately 7-10 working days after preparing for filing with the Land Registry Office. However, this registration time may vary depending on the area and other relevant circumstances. 

With all of the documents related to the trust, you can open a bank account in the name of the trust at any designated bank in Bangladesh and conduct the regular activities of the trust.

After successful registration, the trust property must be transferred to the trustees and the trust operations may begin according to the trust deed.

Advantages of Establishing a Trust

• Legal Protection: Creates a legal framework for managing assets and protection for properties and investments
• Tax benefits: Trusts are exempted from certain tax benefits depending on its structure
• Family Benefits: Establishing trusts protects family wealth across generations and ensures that assets are passed to specific beneficiaries according to your wishes.
• Asset Management: Trusts allows asset management by appointed trustees and provides perpetuity even after the settlor’s death.
• Privacy Benefits: It offers more privacy and limits public disclosure of asset transfers and distributions.
• Charitable Purpose: It establishes a formal structure for charitable activities and creates a legacy for charitable purposes.
• Business Continuity: Trusts holds business interests and ensures proper succession of the business, by protecting its assets from personal liabilities.

The Challenges of Establishing a Trust

• Limited Flexibility: It is difficult to change trust’s terms once established, making its structure rigid. Moreover, changes in circumstances may result in making the trust provisions impractical.
• Control: As the decision-making power shifts to trustees, there is a possibility for conflicts or mismanagement made by the trustee. 
• Risk of Mismanagement by Trustees: If trustees act in bad faith, there is a risk of mismanagement of assets, as there is a lack of proper oversight, which leads to financial losses or misuse of funds of the trust.
• Trustee’s Succession: If a trustee resigns, becomes incapable, or passes away, appointing a new trustee can be a challenge.
• Transparency: There are concerns regarding the lack of proper financial reporting and transparency in the management and distribution of the trusts’ funds.

Termination of a Trust in Bangladesh

A trust under the Trusts Act, 1882 can be terminated in the following cases:

• The trust’s purpose is fulfilled, or it becomes illegal, impractical, or impossible to achieve.
• The settlor (creator of the trust) revokes it, if it’s a revocable trust.
• All beneficiaries agree to end the trust.
• The trust period expires.
• A court orders termination due to legal reasons.
• The trustee breaches their duty, misuses assets, or engages in misconduct.
• The sole trustee and sole beneficiary become the same person (merger of interests).

Private and public trusts in Bangladesh serve distinct but complementary roles in society. While private trusts focus on family and personal matters, public trusts contribute to broader social welfare, mostly through charity. Understanding their features, requirements, and challenges is crucial for effective trust management and compliance in Bangladesh’s legal and social context.

FAQs on Trust in Bangladesh.

1. What are the main types of trusts in Bangladesh?

The main types include private trusts for specific individuals focusing on family and personal matters, public trusts for public benefit purposes including charitable trusts and religious trusts. 

2. Do you need to register a trust in Bangladesh?

No mandatory registration for Private trusts except for trusts involving immovable property. The registration of public and charitable trusts is mandatory.

3. Who are the key parties in a trust?

The key parties are: the author/settlor who creates the trust, trustees who manage the trust property and the beneficiaries who get benefit from the trust and in some cases. 

4. Who may create Trusts? 

A trust may be created by any person competent to make a contract. For a minor, permission of a principal Civil Court of original jurisdiction will be required.

5. What is a settlor? Can someone be both a settler and a trustee?

Yes, though it is best to have independent trustees to remain neutral.

6. Where should a trust be registered in Bangladesh?

Trusts should be registered at the Sub-Registry Office in the jurisdiction where the trust property is situated and/or where the trustees primarily administer the trust.

7. What documents are required for trust registration?

Required documents typically include: the original trust deed, identity proof of settlor and trustees, address proof, details of trust property, and any other documents specified by the local Sub-Registry Office.

8. How is a trust registered?

• determine the authority for trust deed registration, 
• the registration fees, 
• then sign the Trust Deed, 
• submit an application for a certified copy, 
• register under the Societies Registration Act, 1860 
• operate as a trust in Bangladesh.

9. Can foreign nationals be the author or beneficiaries of trusts in Bangladesh?

There is no specific bar for a foreign nationals to establish or be beneficiaries of trusts in Bangladesh, but there may be additional regulatory requirements and foreign exchange regulations to comply with.

10. Can trustees be personally liable?

Yes, A registered trust being a legal entity, can be held personally liable for breach of trust, negligence in administering trust property, or failure to fulfill their fiduciary duties.

✅ LegalBD is happy to draft your registration documents, manage your registration, and provide ongoing maintenance for your Co-operative Societies. Contact us for more details.