Income Tax Act, 1961, defines a Trust as “An arrangement by which property is handed over to or vested in a person, to use and dispose of for the benefit of another person”. Creation of a Trust can be broadly classified into two methods namely private trust formation and public trust formation.
Private Trust Formation
A private trust may be created either inter vivos or by will. Creation of Trusts are subject to the provisions of Indian Succession Act, 1925.
Public Trust Formation
Similar to private trusts, public trusts may be created either inter vivos or by will.
A trust can be public even if the control of the trust property was not vested in the public but was retained by the settlors, provided that the funds are utilized for the welfare of the public, which makes it clear that the public trust can be headed and controlled by a private entity