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IAI Actuarial Core Principles · Business Management · Trusts and agency

Mr. Raghunath Iyer in Chennai signs a document transferring Rs 50 lakh of shares to his friend Meera, asking her to hold them and pay the dividends to his minor niece Anika until she turns 21, after which the shares go to Anika. Which description best fits this arrangement under Indian trust law?

It is a trust: Raghunath, who transfers the shares, is the settlor; Meera, who accepts the obligation to hold them, is the trustee; and Anika, who receives the benefit, is the beneficiary. Agency, bailment or partnership would not fit because the property is held for a third party.

  1. AA trust in which Raghunath is settlor, Meera is trustee and Anika is beneficiaryCorrect
  2. BA trust in which Meera is settlor, Raghunath is trustee and Anika is beneficiary
  3. CA contract of agency in which Meera acts as Raghunath's agent and Anika is the principal
  4. DA bailment of the shares to Meera for Raghunath's own benefit
  5. A partnership between Raghunath and Meera with Anika as sleeping partner

Explanation

The person who creates the trust and transfers property is the author or settlor (Raghunath). The person who accepts the obligation to hold it is the trustee (Meera). The person for whose benefit it is held is the beneficiary (Anika). Agency, bailment and partnership do not describe holding property for a third party's benefit.

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