Legal Advice on Public and Private Trusts in Pakistan

Update 30th of May 2024: We have received a lot of queries from people in Pakistan and Abroad regarding registration of Private Trusts in Pakistan after the new regime of the law of trusts was introduced.Many people are concerned whether it will bring them any special tax benefits.Therefore we have compiled a list of frequently asked questions below for the benefit of the general public looking to register a private trust in Pakistan. (For a detailed Q and A scroll down to the end of this page)

FAQ1. What type of private trust is best suited for my family’s needs: revocable, irrevocable, living trust, or testamentary trust? A revocable living trust is generally best suited for family purposes where the settlor wishes to retain control over the assets during their lifetime. This type of trust can be modified or revoked by the settlor, providing flexibility. It allows the transfer of savings and assets into the trust while enabling the settlor to make changes as necessary.

FAQ2- Is the settlor free to control buy and sell assets anytime? In a revocable trust, the settlor retains the ability to control, buy, and sell assets. As the trustee, the settlor can manage the assets, including buying and selling, without restrictions. The Punjab Trusts Act for example allows for such flexibility, provided the actions align with the trust’s purpose and beneficiary interests.

FAQ3- How will the private trust be funded, and what assets can be transferred to the trust? The trust can be funded by transferring ownership of various assets, including cash, real estate, stocks, and other personal property, to the trust. According to Section 5 of the Punjab Trusts Act 2020, the transfer must be documented and registered, especially for immovable property, to be valid.

FAQ4- How do responsibilities  and powers work for trustees and beneficiaries? Trustees have the duty to manage the trust property prudently, maintain accurate records, and act in the best interest of the beneficiaries (Sections 23-32). Beneficiaries have the right to receive information about the trust and its accounts, and they can demand proper administration of the trust (Sections 70-76).

FAQ5- Do trust assets show in personal FBR record of settlor? Once assets are transferred to the trust, they are no longer part of the settlor’s personal assets. They should not appear in the personal Federal Board of Revenue (FBR) records of the settlor, provided the trust is properly registered and maintained.

FAQ6- Does a  trust file yearly tax returns to FBR? Yes, trusts are required to file annual tax returns with the FBR. The trustee must ensure compliance with tax obligations, including reporting income generated by the trust assets.

FAQ7- How will the trust be taxed, and are there any tax benefits to using a trust?

Private trusts in Pakistan are taxed at progressive rates similar to individuals. As per the interpretation of Section 90 of the Income Tax Ordinance, 2001, if a trust is revocable, the income generated by the trust assets is treated as the income of the settlor and taxed accordingly. For irrevocable trusts, the income is generally taxed at the trust level unless the settlor retains some benefits or control over the trust assets, in which case the income may still be attributable to the settlor .Also Trusts are required to withhold tax on certain types of payments, such as dividends, interest, and payments to contractors, as per the withholding tax rates published by the Federal Board of Revenue (FBR). Additionally, trusts must file annual tax returns with the FBR, detailing all income, expenses, and distributions made during the year.

FAQ8- How will the trust be kept confidential, and how someone can check the assets of trust? Confidentiality can be maintained through proper documentation and limiting disclosure of trust details. However, regulatory authorities, such as the FBR or relevant provincial bodies, may have access to trust information for compliance purposes. Public disclosure is limited unless required by law.

FAQ9-Can a trust be operated in other provinces/ regions? If you intend to operate the trust beyond Punjab, such as in Islamabad, you will need to register the trust under the Islamabad Capital Territory Trust Act, 2020, as the laws differ between provinces and the capital territory. Trusts registered under the Punjab Trusts Act, 2020 do not automatically extend their operation to Islamabad or other regions governed by separate laws. To hold property in Islamabad, the trust must adhere to the local regulatory framework of the Islamabad Capital Territory Trust Act, 2020, which includes specific provisions for transparency, registration, and compliance

FAQ10- Can You Be Both Trustee and Beneficiary?: Yes, you can be both a trustee and a beneficiary of the same trust. However, it is essential to remember that as a trustee, you will be bound by fiduciary duties under the Act, including acting impartially between beneficiaries, even if you are one of them. Section 65 of the Punjab Trusts Act 2020 expressly prohibits trustees from using trust property for personal profit or favouring certain beneficiaries at the expense of others

FAQ11-Owning Property Through the Trust: You can indeed hold properties through the trust in Punjab. The trust becomes the legal owner of any property registered in its name, and it is administered by the trustees for the benefit of the beneficiaries. Section 14 of the Punjab Trusts Act, 2020 allows for the ownership of both movable and immovable properties through a private trust.

FAQ12- What is the difference between Trusts and Specialized Trusts under the Punjab Trusts Act 2020?

Update 1st of May 2024

The amendments introduced by the Punjab Trusts (Amendment) Act 2022 have brought significant changes to the Punjab Trusts Act 2020. Below is a detailed analysis of the major amendments and how they have altered the original provisions of the Act:

1. Amendment of Section 3 (Definitions):
   • Clause (b) and (d): The words “a natural” were substituted with “any”, broadening the scope to include any person, not limited to natural persons, who can be an author or beneficiary of a trust.
   • New Clause (oo): Introduced a definition for “regulator” as mentioned in Schedule IV of the Anti-Money Laundering Act, 2010. This inclusion aligns the trust regulations with anti-money laundering frameworks.
   • Clause (t): Added a definition for “specialized trust”, encompassing trusts created for various specific purposes such as collective investment schemes, pension funds, and real estate investment trusts, among others. This provides clarity and categorization for different types of trusts under regulatory oversight.
2. Amendment of Section 7 (Who May Create a Trust):
   • The term “a natural” was replaced with “any”, thus expanding the eligibility to create a trust to any person competent to contract, not just natural persons.
3. Amendment of Sections 9 and 11 (Who May Be a Beneficiary and Trustee):
   • The word “natural” was omitted, allowing any person capable of holding property to be a beneficiary or trustee, not limited to natural persons. This amendment broadens the pool of potential trustees and beneficiaries.
4. Amendment of Section 15 (Trusts to Be Registered):
   • The amended section mandates that no trust shall be functional unless registered with the Director under the Act. All existing trusts under previous laws must register within a specified timeframe. Trusts failing to register will cease to operate and face necessary actions under Section 92.
5. Insertion of Section 15-A (Registration of Specialized Trusts):
   • Introduced a new section for the registration of specialized trusts. Trustees must provide a No Objection Certificate from the concerned regulator. This section also deems pre-existing specialized trusts as registered and mandates the issuance of registration certificates for them.
6. Amendment of Section 20 (Register of Trusts):
   • Modified the responsibilities for maintaining the trust register. The Director at the provincial level and the Assistant Director at the tehsil level must jointly maintain the register in a manner determined by the Department, enhancing the administrative structure for oversight.
7. Amendment of Section 92 (Trust How Extinguished):
   • Added Clause (cc) which stipulates that a trust will be extinguished if it fails to comply with the registration requirements of Sections 15 and 15-A, ensuring stricter compliance and enforcement.

Implications of the Amendments:

• Broadening of Scope: The amendments significantly broaden the scope by allowing any person, including legal entities, to be authors, trustees, or beneficiaries. This change aligns with modern trust practices where corporations or other entities often play these roles.
• Enhanced Regulatory Oversight: By including definitions and provisions related to specialized trusts and their mandatory registration with regulatory bodies, the amendments ensure greater oversight and compliance, particularly in financial and investment-related trusts.
• Mandatory Registration and Compliance: The stringent requirements for registration under the amended Section 15 and new Section 15-A emphasize transparency and accountability. Trusts must adhere to these requirements or face cessation of operations, ensuring that all functioning trusts are properly documented and regulated.
• Alignment with Anti-Money Laundering Laws: The inclusion of provisions related to regulators as per the Anti-Money Laundering Act, 2010, integrates trust management with broader financial regulations aimed at preventing money laundering and related financial crimes.

These amendments enhance the regulatory framework, promote transparency, and align the Punjab Trusts Act with modern legal and financial practices. They ensure that trusts operate within a well-defined legal structure, providing better protection for beneficiaries and maintaining the integrity of trust operations.

Update April 15 2024: What are the Punjab Trusts Rules 2020?

The Punjab Trusts Rules 2020 were established to implement and provide detailed procedural guidelines for the Punjab Trusts Act 2020. These rules cover several aspects crucial for the practical application of the Act. Here is a detailed overview and critique of the Punjab Trusts Rules 2020:

Key Provisions of the Punjab Trusts Rules 2020

1. Short Title and Commencement:
   • The rules are officially cited as the Punjab Trusts Rules 2020 and came into effect immediately upon publication.
2. Definitions:
   • The rules provide definitions for terms used within the context of the Act and the rules themselves, ensuring clarity and consistency.
3. Maintaining Register of Trusts and Publication of Information:
   • According to Rule 3, the register of trusts must be maintained in a specific format (Form-I). This register includes comprehensive details about each trust, such as the name of the trust, details of trust property, objectives, and particulars of trustees and beneficiaries.
   • Rule 3(2) requires that certain details of the trusts be published in two widely circulated national newspapers, one in Urdu and one in English, ensuring public accessibility and transparency.
4. Provision of Information:
   • Rule 4 mandates trustees to provide required information using Form-II within seven days upon request by the relevant authorities. This ensures timely availability of information for regulatory purposes.
5. Power to Convey:
   • Rule 5 gives trustees the authority to convey or dispose of trust property through registered deeds, where compulsory, ensuring legal compliance in the transfer of property.

Critique of the Punjab Trusts Rules 2020

1. Transparency vs. Privacy Concerns:
   • While the publication of trust details in national newspapers (Rule 3) enhances transparency, it also raises privacy concerns. Trustees and beneficiaries might find this level of disclosure intrusive, potentially deterring the establishment of trusts due to fears of exposure to undue scrutiny or security risks.
2. Administrative Burden:
   • The requirement for trustees to provide detailed information within a very short timeframe (seven days as per Rule 4) can be administratively burdensome. This could be particularly challenging for larger trusts with complex structures or those operating in multiple locations. A longer timeframe or a phased submission approach might be more practical.
3. Lack of Flexibility in Information Provision:
   • The rules are rigid in terms of the forms and procedures to be followed. For instance, the mandatory use of specific forms (Form-I and Form-II) may not accommodate all types of trust arrangements or the varying capacities of trustees. A more flexible approach that allows for digital submissions and adaptable formats could enhance compliance and ease of administration.
4. Publication Requirements:
   • The requirement to publish details in both Urdu and English newspapers (Rule 3) is aimed at wide dissemination. However, this might not be necessary for all types of trusts, particularly private family trusts, where confidentiality is paramount. The rules could benefit from a distinction between public and private trusts concerning disclosure requirements.
5. Potential Overreach:
   • The power granted to trustees to dispose of trust property through registered deeds and mutations (Rule 5) is appropriate for ensuring legal compliance. However, it might be overreaching if not balanced with adequate checks and oversight to prevent misuse or unilateral decisions by trustees that could affect the beneficiaries’ interests.

Recommendations for Improvement

1. Enhanced Privacy Protections:
   • Introduce provisions that protect the privacy of trustees and beneficiaries, particularly for private family trusts. This could involve limiting the extent of information published publicly and ensuring data protection measures are in place.
2. Extended Timeframes:
   • Provide more realistic timeframes for the submission of required information, allowing trustees to comply without undue pressure. This extension could be particularly beneficial for trusts with extensive or complex assets.
3. Digital and Flexible Reporting Options:
   • Incorporate digital submission options and flexible reporting formats to streamline administrative processes and reduce the burden on trustees. This could include online portals for information submission and updates.
4. Differentiated Disclosure Requirements:
   • Differentiate between public and private trusts in terms of disclosure requirements. Public trusts could have more stringent transparency rules, while private trusts could benefit from greater confidentiality.
5. Balanced Trustee Powers:
   • Ensure that the powers granted to trustees are balanced with adequate oversight mechanisms to protect beneficiaries’ interests. This could involve periodic audits or reviews by independent bodies.

The Punjab Trusts Rules 2020 provide a structured framework for the administration and regulation of trusts in Punjab, enhancing transparency and regulatory compliance. However, addressing the highlighted issues could further refine the rules to better balance transparency, privacy, and administrative efficiency.

Public Charitable Trusts in Pakistan: Promoting Social Welfare and Positive Change

Public charitable trusts in Pakistan play a pivotal role in uplifting communities and promoting social welfare. These trusts are established with the primary objective of benefiting society or specific segments thereof. By dedicating resources and efforts to address social issues, public charitable trusts contribute to the betterment of society, fostering positive change, and improving the lives of individuals in need.

Public charitable trusts in Pakistan are legal entities formed with the purpose of providing assistance, support, and resources for the betterment of society. They are usually established through a trust deed, wherein the settlor (the person creating the trust) outlines the objectives, governance structure, and utilization of funds for charitable purposes. The beneficiaries of these trusts can be diverse, ranging from disadvantaged groups, the underprivileged, education and healthcare sectors, environmental causes, and more.

Public charitable trusts in Pakistan serve as catalysts for addressing various social issues that impact communities. They actively engage in activities and programs aimed at combating poverty, promoting education, improving healthcare access, empowering marginalized groups, advancing environmental sustainability, and supporting cultural and artistic initiatives. These trusts often focus on the areas where government resources may be limited, providing vital support and filling gaps in services.

Public charitable trusts often focus on empowering marginalized communities by providing them with the necessary resources and support. They initiate skill development programs, vocational training, and entrepreneurship opportunities to uplift individuals from disadvantaged backgrounds. Additionally, these trusts may run rehabilitation centers for differently-abled individuals, homes for the elderly, and shelters for homeless individuals, providing them with a dignified and supportive environment.

To maintain public trust and confidence, public charitable trusts in Pakistan are now required to adhere to strict regulations and standards of transparency and accountability as will be discussed below. They are now subjected to specific financial audits, reporting requirements, and regulatory oversight to ensure that the funds are utilized for the intended purposes and that the trusts operate efficiently and effectively.

Public/Private Trust Registration Laws and Rules in Pakistan:

Before 2020, trusts were being established under the Trusts Act of 1882. But now, each province has full autonomy regarding trust registration and other trust-related deeds under the amendment. They are:

1. The Islamabad Capital Territory Trust Act, 2020
2. The Punjab Trusts Act, 2020
3. The Sindh Trusts Act, 2020
4. The Khyber Pakhtunkhwa Trust Act, 2020
5. The Balochistan Trusts Act, 2020

Basic Requirements for Registration of a Public/Charitable Trust:

To create a charitable trust, three requirements must be met: the creator, the trustee, and the beneficiary. Unless the trust’s objectives are clearly stated, uncertainty will lead to its failure. Trusts created by public charities benefit society, or at least a certain segment of society. Trusts governed by public law are no different from private trusts. As opposed to private trusts, however, these trusts would remain in existence as long as they have a charitable purpose, regardless of their goals.

Conditions of a Public Trust:

The following criteria are essential to establishing a public trust:

1. The trust must own property, whether it is cash or capital assets (land or buildings).

2. Charity or social benefit must be the goal of the Public trust.

Therefore, a trust must meet these conditions or ‘certainties’ in order to be valid. However, public charities do not have the same requirements. As in private trusts, charitable trusts require certainty regarding the intention to declare a binding trust, and the assets to be bound by it are strictly required.

Private trusts will fail if their beneficiaries are not clearly specified, but public charitable trusts can be sustained regardless of their beneficiaries as long as there is a general trust intention for charity.

Establishing a trust for any lawful purpose is possible, and it can be revoked at any time. The Trust Acts 2020 (province wise) cover private acts of public charity, providing great flexibility to the trust creators. All areas of Pakistan are covered by the Trust Acts (of their respective provinces).

Importance of Legal Expertise in Trust Registration:

Registering a public charitable trust requires compliance with various legal formalities and regulations. It is crucial to seek legal expertise to ensure that the trust’s objectives are clearly defined, and all necessary legal documents are properly drafted. An experienced legal team can guide the trustees through the registration process and advise them on the best practices for governance, financial management, and reporting.

In addition, legal experts can help trustees understand the tax implications of the trust’s activities and ensure that the trust remains in compliance with the relevant laws and regulations. They can also assist in obtaining the necessary approvals and permissions from the government authorities, ensuring a smooth and efficient registration process.

Public charitable trusts in Pakistan hold immense importance in fostering positive social change and uplifting communities.The 2020 amendments to trust registration laws have provided more autonomy to each province, allowing for a more streamlined and region-specific approach to trust registration.

Our Legal Services in the Law of Trusts in Pakistan include:

1. Trust Formation and Structuring: Our skilled team assists clients in establishing trusts by providing meticulous guidance on the legal requirements, documentation, and procedures involved. We ensure that your trust is structured in strict adherence to the relevant laws and regulations, guaranteeing its legal validity and effectiveness.
2. Trust Registration: We understand the significance of trust registration in ensuring compliance and protection of your interests. Our professionals have extensive experience in navigating the registration process under the new framework of trust laws in Pakistan. We assist you in preparing and submitting the necessary documentation, liaising with the relevant authorities, and ensuring a seamless registration process.
3. Trust Administration and Compliance: Our dedicated team provides comprehensive support in the administration and management of trusts, ensuring adherence to legal obligations and regulatory compliance. We assist in maintaining accurate accounting records, conducting third-party audits, and preparing financial reports in line with the requirements of the registering authority. Our focus is on ensuring your trust operates smoothly and complies with all necessary legal obligations.
4. Trust Disputes and Litigation: In the unfortunate event of trust disputes or litigation, we offer expert legal representation and guidance to protect your interests. Our experienced litigators are well-versed in trust law and have a proven track record of achieving favorable outcomes for our clients. We employ negotiation, mediation, and litigation strategies tailored to your unique circumstances, ensuring the most effective resolution of trust-related disputes.
5. Trust Amendment and Termination: We provide comprehensive legal advice and assistance in amending trust deeds to accommodate changes in circumstances or to address specific requirements. Additionally, we guide you through the process of trust termination, ensuring compliance with legal procedures and protecting the interests of all parties involved.
6. Trust Advisory Services: Our trusted advisors provide strategic and practical advice on all aspects of trust law in Pakistan. Whether it’s trust management, asset protection, taxation implications, or compliance with evolving legal and regulatory frameworks, we offer expert guidance to empower you to make well-informed decisions regarding your trust.
7. Trust Due Diligence: Our diligent team conducts thorough due diligence on existing trusts, assessing legal risks and compliance issues. We meticulously review trust documentation, assess the enforceability of trust structures, and provide detailed recommendations to mitigate potential risks and ensure legal compliance.

Private Trust Registration in Pakistan: We understand the importance and intricacies involved in setting up private trusts to safeguard assets and plan for the future. Our team of experienced lawyers provides comprehensive assistance to individuals and families seeking to establish private trusts in Pakistan.

Importance of Private Trusts in Pakistan:

Private trusts in Pakistan offer numerous benefits, such as asset protection, estate planning, and providing for beneficiaries’ financial security. They allow individuals to retain control over their assets while ensuring their distribution according to their wishes. Private trusts also provide a structured framework for the effective management and distribution of assets, protecting them from potential disputes or legal complications.

Our Services for Private Trust Registration:

1. Comprehensive Legal Consultation: Our legal experts at Josh and Mak International offer personalized consultations to understand our clients’ specific needs and objectives. We assess the assets involved and guide our clients in choosing the most appropriate type of trust structure to achieve their desired outcomes.
2. Drafting Trust Deeds: We draft meticulously crafted trust deeds that outline the terms and conditions of the trust, the rights and responsibilities of trustees and beneficiaries, and the distribution of assets. Our team ensures that the trust deed is in compliance with all relevant laws and regulations.
3. Legal Documentation: We handle all the necessary legal documentation required for the registration of private trusts, ensuring that the process is smooth and efficient. Our attention to detail helps avoid potential delays or complications during registration.
4. Liaison with Authorities: Josh and Mak International acts as a liaison between our clients and the relevant government authorities to facilitate the registration process. We ensure that all required documents are submitted promptly, and any queries from the authorities are addressed promptly.
5. Tax Planning and Compliance: Our legal experts provide valuable advice on tax planning and compliance matters related to private trusts. We help clients optimize their tax liabilities while adhering to the tax laws and regulations.
6. Ongoing Legal Support: Our commitment to our clients does not end with trust registration. We provide ongoing legal support and guidance to trustees to ensure the smooth administration and management of the trust, including compliance with reporting and regulatory requirements.

Trusts in Pakistan, a pivotal legal mechanism, serve as vehicles for advancing philanthropic endeavors and promoting social welfare. In essence, two distinct types of trusts exist: Private Trusts, established for the benefit of private individuals, and Public Trusts, dedicated to uplifting society or specific segments thereof. The foundation of a trust necessitates the presence of a creator/author, a trustee, beneficiaries, and trust property, which may encompass monetary funds or tangible assets.

Central to the operation of a trust are the trustees who constitute the governing body responsible for fulfilling the trust’s objectives, abiding by the creator’s instructions, and diligently managing the trust property, as laid down in the Deed of Declaration of Trust.

Traditionally, trusts were registered under the Trust Act 1882 (Act II of 1882), a federal statute embraced by all provinces and Islamabad, albeit with minor amendments. However, a significant transformation occurred in 2020 when each province, along with Islamabad, enacted distinct legislation governing the incorporation, registration, and functioning of trusts. These statutes, known as the 2020 Trusts Acts, encompass the Punjab Trusts Act, 2020 (Act XXI of 2020), the Sindh Trusts Act, 2020 (Act XXIX of 2020), the Islamabad Capital Territory Trust Act, 2020 (Act XXV of 2020), the Khyber Pakhtunkhwa Trust Act, 2020 (Act XXXIII of 2020), and the Balochistan Trust Act, 2020 (Act IV of 2020).

While the 2020 Trusts Acts share commonalities in substance, they diverge slightly in registration procedures. Each statute mandates that any trust operating within its jurisdiction, whether in a province or the capital territory, must be duly registered with the relevant provincial authorities, in compliance with the respective law.

By embracing the legal framework of trusts, individuals and organizations can channel their philanthropic visions into meaningful actions, creating a profound impact on society and promoting the betterment of communities. Trusts, guided by the 2020 Trusts Acts, play a crucial role in fostering a culture of giving, social upliftment, and collective progress in Pakistan.

At Josh and Mak International, we are passionate about delivering exceptional legal services in the Law of Trusts in Pakistan. Our commitment to excellence, deep legal expertise, and client-centric approach set us apart as a trusted partner for all your trust-related legal needs. Contact us today at [email protected] to experience our unparalleled services and achieve the utmost confidence and success in navigating the Law of Trusts in Pakistan.

Update 2023: Clarifying the Distinction between Private Trusts and Charities (Public Trusts) in Pakistan

There seems to be some confusion surrounding the differences between trusts and charities in recent queries we have received. After reviewing numerous trust deeds provided by our clients, it appears that there may be some misunderstanding regarding the registration of public charities under the new trusts legislation.

In one particular case, a charity/Public Trust originally registered under the Trusts Act 1882 was trying to re-register itself  under the KPK Trusts Act 2020. However, it is important to note that the appropriate forum for registering a public charity in Pakistan is the Khyber Pakhtunkhwa Charities Act 2019. This act specifically governs the registration, administration, and regulation of charities, as well as the collection of charitable funds in KPK. It is tailored to address the unique needs and operations of charities, including fundraising appeals and fund collection.

As far as new Trust Registration is concerned for Private Trusts, the relevant registration will be under the Trusts Act 2020 (Province wise).

To provide clarity, let’s summarize the key distinctions between a Private trust and a Public Trust/charity:

Purpose:

• Trust (Private): A trust is established to manage and safeguard assets for the benefit of specific beneficiaries, in accordance with the terms and conditions outlined in the trust deed.
• Charity/Trust (Public): A charity is created to support and advance specific charitable purposes or causes, with the aim of providing public benefit, such as poverty alleviation, education advancement, healthcare promotion, or support for the arts.

Legal Status:

• Trust (Private): A trust is a private legal arrangement involving a settlor, trustee, and beneficiaries. Registration with a regulatory authority is not always mandatory for trusts.
• Charity/Trust (Public) : A charity is a formal legal entity that must be registered and recognized by the relevant regulatory authority in a specific jurisdiction. It must meet specific legal requirements and criteria to obtain charitable status.

Governance and Accountability:

• Trust (Private): The governance and accountability of a trust primarily rely on the terms specified in the trust deed and the trustee’s fiduciary obligations towards the beneficiaries.
• Charity/Public Trust: Charities operate within a distinct legal and regulatory framework that governs their activities. They often have a board of trustees or directors responsible for overseeing governance and ensuring compliance with relevant laws and regulations.

Tax and Financial Considerations:

• Trust (private): Income generated by a trust is typically distributed to the beneficiaries and subject to taxation at their individual levels.
• Charity/Public Trust: Charities may enjoy tax benefits and exemptions due to their recognized status. Donations made to registered charities can be tax-deductible, and charities themselves may be exempt from certain taxes. Financial transparency and accountability are of utmost importance for charities.

We hope this clarification helps the general public understand the differences between trusts and charities. If you have any further questions or require assistance, please feel free to contact us at [email protected].

Understanding Risks Emanating from Foreign Trusts under the Updated LPLA Risk Assessment

With the rising global concerns over money laundering and terrorist financing, Pakistan has taken a proactive step by introducing the Legal Persons and Legal Arrangements (LPLA) Risk Assessment, which sheds light on the vulnerabilities within legal structures like trusts, companies, and waqfs. Among the high-risk entities identified, foreign trusts stand out due to their inherent potential to be exploited for illicit financial activities.

Risks Associated with Foreign Trusts

The LPLA Risk Assessment outlines several key factors that make foreign trusts more susceptible to abuse for money laundering (ML) and terrorist financing (TF):

1. Involvement of Foreign Entities: Trusts that include foreign companies, entities, or individuals as shareholders, trustees, or partners are at a heightened risk of being used for ML/TF purposes. The cross-border nature of such structures makes it difficult for regulatory bodies to track funds, especially in cases where international jurisdictions have differing levels of enforcement or transparency in tax and trust laws.
2. Foreign Sponsorship: Trusts that are sponsored from abroad, or those that receive funding from foreign sources, present a significant vulnerability. These foreign inflows can potentially be funneled into criminal activities, especially when there is a lack of coordination between the tax authorities of different countries.
3. Foreign Bank Accounts: Trusts that operate offshore bank accounts are another red flag for regulators. The use of foreign bank accounts can obscure the source and movement of funds, making it easier for bad actors to launder money without detection.
4. Waqfs with Foreign Connections: Properties linked to waqfs, especially those receiving funds from foreign charities or donor agencies, also fall under the high-risk category. Such waqfs can serve as conduits for terrorist financing, especially in regions where monitoring of these activities is lax.

Registration of Foreign Trusts in Pakistan

Foreign trusts that operate in Pakistan are required to adhere to the Trust Laws/Rules of the country. This means that any foreign trust must undergo the same level of scrutiny and comply with the national regulations, regardless of its origin. This framework ensures that foreign trusts are subjected to the same rigorous AML/CFT measures as domestic entities, thereby mitigating the risk of their misuse for illegal purposes.

Key Characteristics of High-Risk Entities

The LPLA Risk Assessment doesn’t stop at foreign trusts. It extends its examination to various legal persons and arrangements, identifying several characteristics that may classify an entity as high-risk. These include:

• Multi-layered ownership structures, particularly those involving more than two layers.
• Inactive companies and entities associated with politically exposed persons (PEPs).
• Companies and trusts that are registered in or operate in regions with known terrorist activities.
• Entities engaged in unauthorised business activities, such as Ponzi schemes or insider trading.

Conclusion: Proactive Measures Against ML/TF Risks

The LPLA Risk Assessment is a vital tool for Pakistan’s legal and regulatory framework in combating money laundering and terrorist financing. By identifying the vulnerabilities associated with foreign trusts and other high-risk entities, the country aims to mitigate potential threats and enhance the transparency of financial and legal arrangements.

For individuals or entities dealing with foreign trusts, understanding and complying with these regulations is not only a legal requirement but also a crucial step in ensuring that their operations remain above board and free from exploitation for illicit activities.

A review of the  new legal regime of the Law of Public and Private Trusts in Pakistan

In 2020, Pakistan took a significant step forward in modernizing its legal framework surrounding trusts. The Trust Act of 1882, a remnant of the colonial era, was repealed and replaced by new trusts legislation enacted by the provinces of Sindh, Balochistan, Punjab, Khyber Pakhtunkhwa, and the Islamabad Capital Territory (ICT). The impetus for these new laws stemmed from recommendations by the Financial Action Task Force (FATF) to address money laundering and terrorist financing risks associated with trusts, including foreign trusts and Waqfs (Islamic charitable trusts) in Pakistan.

The introduction of the new provincial laws has brought about substantial changes to the registration process and record-keeping requirements for trusts. These changes are aimed at enhancing disclosure, data collection, and inspection measures by government authorities to effectively combat financial crimes.

Under the previous Trust Act of 1882, only trust deeds involving immovable property were required to be registered with provincial authorities under the Registration Act of 1908. No verification exercise was specified or carried out, and movable property trusts were exempt from registration altogether.

However, the new laws mandate the registration of all trusts, regardless of whether they involve movable or immovable property. The registration process involves verification by the registering authority, who examines the details provided by the trustee in the application for registration. These details include information about the trust’s purpose, author, property, trustees, beneficiaries, and any individuals exercising ultimate effective control over the trust.

Once a trust is registered, the laws of Sindh and Khyber Pakhtunkhwa stipulate that the registration must be renewed annually. Notably, a new category of trusts called “specialized trusts” has been exempted from this requirement in Sindh. The concept of specialized trusts was introduced through amendments to the laws of Sindh, Khyber Pakhtunkhwa, and the ICT in 2021. It encompasses trusts created for various purposes such as collective investment schemes, private funds, pension funds, real estate investment trusts, exchange-traded funds, private equity and venture capital funds, debt securities trusts, trusts related to securities issued by federal or provincial governments through capital markets, provident and gratuity funds, and employee benefit trusts. Specialized trusts undergo a different registration process, which entails the submission of a no-objection certificate from the relevant regulator containing trust particulars for verification.

The new laws also extend their reach to existing trusts. With the exception of specialized trusts in Sindh, Khyber Pakhtunkhwa, and the ICT, all trusts created under the Trust Act of 1882 or registered under the Registration Act of 1908, or any other trusts in the four provinces and the ICT, have to be re-registered within a specified timeframe to maintain their functionality.

In terms of record-keeping obligations, the new laws impose comprehensive requirements on trustees. Trustees are now responsible for maintaining proper accounts of the trust property and its income. This includes subjecting accounts to third-party audits and submitting financial reports to the registering authority on an annual basis. Additionally, any changes related to trust assets or individuals associated with the trust must be reported. The trustee is obligated to retain trust records and documents for at least five years after ceasing involvement with the trust.

At Josh and Mak International, we recognize the significance of these recent changes in trust legislation in Pakistan. We offer specialized legal services tailored to assist individuals and entities in navigating the complexities of trust law. Our team of experienced professionals is well-versed in the new registration requirements, record-keeping obligations, and compliance standards set forth by the provincial laws.

Whether you are establishing a new trust, seeking to re-register an existing one, or require expert advice on trust-related matters, our dedicated team is here to provide comprehensive support. Contact Josh and Mak International today to benefit from our profound knowledge and unrivaled expertise in trust law in Pakistan.

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Law of Trusts in Pakistan post 2020: Updates and Challenges

The introduction of new trusts legislation in Pakistan marked a significant shift in the legal landscape. However, as with any new legal framework, there have been challenges and areas requiring further clarification. In order to provide a comprehensive understanding of the law of trusts in Pakistan, it is important to address these updates and practical challenges.

One notable area that demanded attention was the registration requirements and the scope of the new regime. Initially, the provincial laws stipulated that the author, trustee, and beneficiary of a trust could only be a “natural person.” This condition led to confusion regarding the status of trusts associated with non-natural persons and whether they fell under the purview of the amended regime. Amendments in 2021 addressed this confusion in the Sindh, Khyber Pakhtunkhwa, and ICT laws by removing the “natural person” condition. However, the position remains unchanged under the Balochistan and Punjab laws. Additionally, the ordinance through which the ICT trusts law was amended in 2021 has now lapsed and would need to be repromulgated to maintain its effect.

Another area that requires attention is the registration process under the new framework. Applicants in different provinces are facing various hurdles in meeting the new requirements. For instance, in Sindh and Khyber Pakhtunkhwa, the author of the trust and the trustees or their authorized representatives are required to appear in person and provide thumb impressions for registration. This can cause delays, especially when foreign parties are involved. Moreover, the Sindh and Khyber Pakhtunkhwa trust laws mandate the verification of credentials for foreign parties associated with the trust through the relevant embassy of Pakistan, which further adds to the time-consuming process.

The new application process also introduces the requirement for each member of the trust to provide criminal affidavits, affirming their non-involvement in any criminal activity and ensuring that the trust deed complies with the trust laws. However, this poses challenges, particularly for trusts created in the context of foreign financing, as foreign lenders are often hesitant to provide such affidavits due to internal credit department restrictions. Furthermore, delays have been observed due to the high volume of applications submitted for both new and existing trusts simultaneously.

At Josh and Mak International, we understand the intricacies and challenges presented by the evolving law of trusts in Pakistan. We are committed to providing up-to-date information and guidance as the law continues to develop and practical challenges find solutions. Our team of experienced legal professionals stays abreast of the latest developments, enabling us to offer reliable advice and assistance tailored to your specific trust-related needs.

As the law progresses and further clarifications emerge, we will update this page to ensure that you have access to the most accurate and comprehensive information on the law of trusts in Pakistan. Stay tuned for more insights and practical solutions as we navigate the ever-evolving legal landscape together.

AML and Trusts in Pakistan

The Securities and Exchange Commission of Pakistan (SECP) has published a Frequently Asked Questions (FAQ) document on how to identify and verify the beneficiaries in case of trusts as required under Regulation (7)2 of SECP AML/CFT Regulations 2018.

The FAQ document states that in the case of trusts, the regulated person should obtain the following information:

• Whether the trust is a public trust or a private trust
• The trust deed whereby the trust has been created
• Details of the settlor (this will also be available in the trust deed)
• The objects of the trust (this will also be available in the trust deed)
• The trustee of the trust (whether the trustee is an associated person of the settlor)
• A description of each class or type of beneficiary (this information may also be checked from the trust deed)
• Details of any possibility of influence of any other person on the trustee regarding management and control of trust property

In the case of a private trust, if the beneficiary of a trust is also the beneficial owner of the trust, identification and verification of the beneficiary is required. Otherwise, the name and CNIC of each beneficiary of a trust should be obtained.

The regulated person may obtain a declaration from the governing body/board of trustees/executive committee/sponsors on ultimate control, purpose, and source of funds, etc. for this purpose. Further, the documents as per Sr. No. 1 of the Annex 1 of the SECP AML/CFT Regulations, 2018 can be used for identification and verification of the settlor, the trustee, the protector (if any), the beneficiaries, and any natural person exercising ultimate ownership, ultimate control, or ultimate effective control over the trust under Regulation (7)2 of SECP AML/CFT Regulations 2018.

The FAQ document also states that the regulated person should take reasonable steps to verify the information obtained from the trust. This may include, but is not limited to, verifying the identity of the settlor, trustee, and beneficiaries through government records or other reliable sources.

The regulated person should also keep records of the information obtained and the steps taken to verify it for a period of five years from the date of the transaction.

Comparison of the Trusts Act, 1882 and the Punjab Trusts Act, 2020 and its 2022 Amendment

The Trusts Act, 1882, is one of the oldest statutes governing trusts in Pakistan. Despite its longevity, the Act has been considered outdated in addressing contemporary issues in trust law. To modernize and regulate trusts more effectively, the Punjab government enacted the Punjab Trusts Act, 2020. This Act was further amended in 2022 to refine its provisions and ensure more robust governance. This article aims to provide a detailed comparative analysis of these legislative instruments.
Comparative Analysis

The Trusts Act, 1882, primarily deals with the creation, administration, and regulation of private trusts. Key sections include provisions for the creation of trusts, the duties and powers of trustees, and the rights of beneficiaries. This Act has been the cornerstone of trust law but lacks provisions to address modern complexities such as anti-money laundering and the need for transparency in trust administration.

The Punjab Trusts Act, 2020, introduces several new provisions aimed at improving the regulation of trusts. It mandates the registration of all trusts, introduces stricter duties for trustees, and provides mechanisms for the oversight and auditing of trusts. The Act also includes detailed provisions on the creation and management of specialized trusts, such as those involved in collective investment schemes and pension funds.

A comparative analysis of the specific sections reveals significant differences in the approach and comprehensiveness of the two Acts. For instance, while the Trusts Act, 1882, provides basic guidelines on who may be a trustee, the Punjab Trusts Act, 2020, expands on this by requiring trustees to be competent under the Contract Act, 1872, and introducing specific qualifications and duties.

The 2022 amendments to the Punjab Trusts Act, 2020, brought about crucial changes, such as the inclusion of specialized trusts, enhanced definitions, and improved procedural requirements for the registration and management of trusts. These amendments aim to align the Act with international standards and address gaps identified in the 2020 Act.

Both the Trusts Act, 1882, and the Punjab Trusts Act, 2020, provide for the creation of trusts, but the latter introduces mandatory registration requirements. The Punjab Trusts Act, 2020, specifies that no trust shall be functional unless registered with the Director of Land Records. This requirement ensures greater transparency and regulatory oversight.

Duties and Liabilities of Trustees
The Punjab Trusts Act, 2020, significantly expands the duties and liabilities of trustees compared to the Trusts Act, 1882. It imposes stricter fiduciary duties, including the obligation to collect and provide information about the trust, maintain accurate records, and act in the best interest of the beneficiaries. These provisions aim to enhance accountability and protect beneficiaries.
Rights and Protections for Beneficiaries
The Punjab Trusts Act, 2020, introduces new protections for beneficiaries, ensuring they have access to information and can hold trustees accountable. Beneficiaries are entitled to inspect trust documents, request information, and receive accurate accounts of the trust property. These rights are more detailed and robust compared to those provided under the Trusts Act, 1882.
Procedural Changes Introduced by the Punjab Trusts Rules, 2020
The Punjab Trusts Rules, 2020, provide detailed procedures for the implementation of the Punjab Trusts Act, 2020. These rules cover aspects such as maintaining a register of trusts, providing information on trust activities, and ensuring compliance with the Act. The rules are designed to operationalize the provisions of the Act and facilitate its enforcement.
Implications for Trust Administration
Practical Implications of the New Act and Its Amendments
The introduction of the Punjab Trusts Act, 2020, and its amendments in 2022 have significant implications for the administration of trusts. Trustees must now comply with stricter regulatory requirements, including mandatory registration and enhanced fiduciary duties. These changes aim to improve the transparency and accountability of trust administration.
Compliance Requirements Under the New Rules
Trustees must adhere to the compliance requirements set out in the Punjab Trusts Rules, 2020. This includes maintaining detailed records, providing information to beneficiaries, and ensuring that the trust is registered and operates within the legal framework. Non-compliance can result in penalties and legal action.
Impact on Existing Trusts
Existing trusts formed under the Trusts Act, 1882, must now comply with the new provisions of the Punjab Trusts Act, 2020. This includes re-registering the trust and adhering to the updated requirements for trustee duties and beneficiary rights. The transition may require significant adjustments for existing trusts to align with the new regulatory framework.
The evolution of trust law in Punjab, from the Trusts Act, 1882, to the Punjab Trusts Act, 2020, and its amendments, represents a significant shift towards modernizing trust governance. The new legislative framework introduces enhanced regulatory oversight, stricter fiduciary duties, and greater protections for beneficiaries. These changes are expected to improve the transparency, accountability, and overall administration of trusts in Punjab

Q and A on the Punjab Trusts Act 2020, the Punjab Trusts (Amendment) Act 2022, and the Punjab Trusts Rules 2020

These FAQs provide a comprehensive understanding of the Punjab Trusts Act 2020, the Punjab Trusts (Amendment) Act 2022, and the Punjab Trusts Rules 2020, covering various aspects of trust creation, administration, and regulation.

1. What is the primary purpose of the Punjab Trusts Act 2020?
   • The Punjab Trusts Act 2020 aims to revise and modernize the law relating to trusts, ensuring better regulation, transparency, and management of trust properties.
2. How does the Punjab Trusts Act 2020 define a trust?
   • A trust is defined as an obligation annexed to the ownership of property, arising from a confidence reposed and accepted by the trustee for the benefit of another.
3. What entities are excluded from the application of the Punjab Trusts Act 2020?
   • The Act does not affect Muslim law as to waqf, mutual relations of members of an undivided family as determined by any customary or personal law, or apply to public or private religious or charitable endowments.
4. Who can create a trust under the Punjab Trusts Act 2020?
   • Any person competent to contract under the Contract Act, 1872, can create a trust.
5. What are the requirements for the validity of a trust in relation to immovable property?
   • It must be declared by a non-testamentary instrument in writing, signed by the author and the trustee, duly registered, or by the will of the author or the trustee, with the ownership of the property transferred to the trust.
6. What is the role of the Director under the Punjab Trusts Act 2020?
   • The Director is responsible for the registration and maintenance of trust records at the provincial level.
7. What changes were introduced in the Punjab Trusts (Amendment) Act 2022?
   • Key changes include broadening the scope to include any person (not just natural persons) as authors and beneficiaries, introducing specialized trusts, and enforcing mandatory registration of all trusts.
8. What are specialized trusts according to the Punjab Trusts (Amendment) Act 2022?
   • Specialized trusts include collective investment schemes, private funds, pension funds, real estate investment trusts, and other similar financial entities.
9. What is required for the registration of specialized trusts under the Amendment Act 2022?
   • Trustees must provide a No Objection Certificate from the concerned regulator, after which the trust is deemed registered under the Act.
10. What are the consequences of failing to register a trust under the Punjab Trusts Act 2020?
    • Trusts that fail to register will cease to function or operate, and necessary legal actions will be initiated.
11. How does the Punjab Trusts Act 2020 ensure transparency in trust administration?
    • Trustees are required to maintain clear and accurate accounts of the trust property and provide information to beneficiaries and relevant authorities upon request.
12. What is the legal status of the trust property once transferred to a trust?
    • The trust property is no longer part of the settlor’s personal assets and is held in trust for the benefit of the beneficiaries.
13. Can a trustee delegate their duties under the Punjab Trusts Act 2020?
    • A trustee cannot delegate their duties unless specifically allowed by the instrument of trust, by necessity, or with the beneficiary’s consent.
14. What are the responsibilities of trustees under the Punjab Trusts Act 2020?
    • Trustees must execute the trust, protect the trust property, be impartial, prevent waste, and maintain accurate accounts.
15. What rights do beneficiaries have under the Punjab Trusts Act 2020?
    • Beneficiaries have the right to rents and profits, inspect trust documents, transfer their interest, and compel trustees to perform their duties.
16. How are breaches of trust handled under the Punjab Trusts Act 2020?
    • Trustees who breach their duties are liable to make good any loss sustained by the trust property or beneficiaries and may face legal consequences.
17. What provisions are there for the removal and appointment of trustees under the Act?
    • Trustees can be removed or new trustees appointed by the court, the author of the trust, or surviving trustees under specific circumstances.
18. How does the Punjab Trusts Act 2020 address the extinction of trusts?
    • Trusts are extinguished when their purpose is fulfilled, becomes impossible, or when revoked according to the terms of the trust or by law.
19. What are the key functions of the Punjab Trusts Rules 2020?
    • The rules provide detailed procedural guidelines for maintaining the register of trusts, providing information, and conveying trust property.
20. How is the register of trusts maintained according to the Punjab Trusts Rules 2020?
    • The register is maintained on Form-I and must include comprehensive details about each trust, including the trust’s name, property, objectives, and particulars of trustees and beneficiaries.
21. What are the requirements for publication of trust information under the Punjab Trusts Rules 2020?
    • Certain details of the trusts must be published in two widely circulated national newspapers, one in Urdu and one in English.
22. How quickly must trustees provide requested information under the Punjab Trusts Rules 2020?
    • Trustees must provide the requested information on Form-II within seven days of receipt of the request.
23. What powers do trustees have regarding the disposal of trust property under the Rules?
    • Trustees can convey or dispose of trust property by sale through a registered deed or mutation, where compulsory under the law.
24. What are the penalties for non-compliance with the Punjab Trusts Rules 2020?
    • Non-compliance can result in fines, legal actions, and possible removal or suspension of trustees.
25. How does the Amendment Act 2022 impact the registration requirements for trusts?
    • The Amendment Act enforces stricter registration requirements, making it mandatory for all trusts to register with the Director, failing which they will cease to operate.
26. What is the process for registering a new trust under the Punjab Trusts Act 2020?
    • Trustees must file an application with detailed information to the Assistant Commissioner, who forwards it to the Director for verification and registration.
27. How does the Punjab Trusts Act 2020 ensure compliance with anti-money laundering laws?
    • The Act includes provisions for cooperation with authorities and mandates reporting entities to share information related to trust assets and beneficiaries.
28. What legal remedies are available to beneficiaries if trustees fail in their duties?
    • Beneficiaries can sue for the execution of the trust, compel trustees to perform their duties, and seek damages for breaches of trust.
29. How are disputes between trustees and beneficiaries resolved under the Act?
    • Disputes can be resolved through court intervention, where the court can provide opinions, advice, or directions on managing the trust property.
30. What are the fiduciary duties of trustees under the Punjab Trusts Act 2020?
    • Trustees must act with the care of a prudent person, avoid conflicts of interest, and not use trust property for personal gain.
31. How does the Punjab Trusts Act 2020 address the investment of trust funds?
    • Trustees are required to invest trust funds in specified securities and follow prudent investment practices.
32. What protections are available for trustees under the Act?
    • Trustees are indemnified for actions taken in good faith and can seek the court’s opinion for managing trust property to avoid liability.
33. Can trusts under the Punjab Trusts Act 2020 be used for charitable purposes?
    • Yes, trusts can be established for charitable purposes, and specific provisions govern their operation and regulation.
34. What is the significance of the term “specialized trust” in the Amendment Act 2022?
    • Specialized trusts are subject to additional regulatory oversight and must obtain a No Objection Certificate from relevant regulators.
35. How are trust accounts audited under the Punjab Trusts Act 2020?
    • Trust accounts must be audited by a third party at least once a year, and financial reports submitted to the Assistant Commissioner.
36. What is the procedure for transferring trust property to a new trustee?
    • Trust property is vested in the new trustee upon appointment, either solely or jointly with existing trustees, following the court’s or author’s instructions.
37. How does the Act protect the interests of minor beneficiaries?
    • Trustees have the authority to apply trust income for minors’ maintenance, education, and advancement, with court approval required for using trust capital.
38. What are the rules regarding the renunciation of trusteeship?
    • Trustees cannot renounce their duties except with the court’s permission, the beneficiaries’ consent, or specific provisions in the trust instrument.
39. How does the Act address the liabilities of co-trustees?
    • Co-trustees are jointly and severally liable for breaches of trust unless they can prove non-involvement or due diligence in preventing the breach.
40. What mechanisms are in place for inspecting trust records?
    • Authorities can inspect trust records at any time, and trustees must provide information and access to records upon request.
41. What happens if a trustee uses trust property for personal profit?
    • Such actions are prohibited, and trustees must compensate the trust for any profit made, with possible additional legal consequences for breaches.
42. How are trust properties registered under the Punjab Trusts Rules 2020?
    • All movable and immovable properties must be registered in the trust’s name under the Registration Act, 1908.
43. What happens if a trustee uses trust property for personal profit?
    • Such actions are prohibited, and trustees must compensate the trust for any profit made, with possible additional legal consequences for breaches.
44. How are trust properties registered under the Punjab Trusts Rules 2020?
    • All movable and immovable properties must be registered in the trust’s name under the Registration Act, 1908.
45. What role does the Assistant Commissioner play in trust administration?
    • The Assistant Commissioner verifies trust applications and maintains the register of trusts at the tehsil level, ensuring compliance with the Act and Rules.
46. How does the Punjab Trusts Act 2020 ensure the independence of trustees?
    • Trustees are required to act impartially and cannot derive personal benefits from trust dealings, ensuring their decisions are in the best interests of the beneficiaries.
47. What is the process for amending the trust deed under the Punjab Trusts Act 2020?
    • Amendments to the trust deed must be made in accordance with the terms specified in the trust instrument, with approval from the beneficiaries or the court if necessary.
48. How does the Punjab Trusts Act 2020 address conflicts of interest?
    • Trustees must avoid conflicts of interest and disclose any potential conflicts to the beneficiaries, obtaining their consent before proceeding with related transactions.
49. What are the penalties for failing to maintain accurate trust records?
    • Trustees who fail to maintain accurate records may face fines, removal from their position, and legal actions for any resulting damages to the trust.
50. How can beneficiaries enforce their rights under the Punjab Trusts Act 2020?
    • Beneficiaries can file a lawsuit to compel trustees to perform their duties, seek removal of trustees, and claim compensation for any breaches of trust.
51. What are the provisions for the dissolution of a trust?
    • Trusts can be dissolved when their purpose is fulfilled, becomes impossible, or as specified in the trust deed, with remaining assets distributed to the beneficiaries.
52. How do the Punjab Trusts Rules 2020 regulate the transfer of trust property?
    • Trustees must execute a registered deed for the transfer of immovable property and follow proper mutation procedures to ensure legal compliance.

51. Can trusts invest in securities issued by the government?
    • Yes, trusts can invest in government securities as part of specialized trusts, provided they obtain necessary approvals and follow regulatory guidelines.
52. What safeguards are in place to protect the interests of vulnerable beneficiaries?
    • Trustees must act in the best interests of all beneficiaries, with specific provisions allowing the court to intervene to protect vulnerable individuals, such as minors or incapacitated beneficiaries.
53. What reporting requirements are imposed on trustees regarding trust income and expenditures?
    • Trustees must provide annual financial reports to the beneficiaries and relevant authorities, detailing income, expenditures, and distributions.
54. How does the Punjab Trusts Act 2020 handle the misappropriation of trust funds?
    • Trustees who misappropriate trust funds are liable for restitution and may face criminal charges, removal from their position, and personal liability for losses incurred.
55. Are trusts subject to audit under the Punjab Trusts Act 2020?
    • Yes, trusts must undergo periodic audits by independent auditors, and the results must be reported to the beneficiaries and relevant authorities.
56. What are the consequences of non-compliance with trust registration requirements?
    • Non-compliance can result in the trust being declared non-functional, with legal actions initiated to cease operations and distribute assets according to the law.
57. How does the Punjab Trusts (Amendment) Act 2022 impact existing trusts?
    • Existing trusts must comply with new registration requirements and obtain necessary approvals from regulators, or they risk being declared non-functional.
58. What role do regulators play in the administration of specialized trusts?
    • Regulators oversee the compliance of specialized trusts with financial regulations, ensuring proper management and protection of investors’ interests.
59. Can a trust operate without being registered under the Punjab Trusts Act 2020?
    • No, unregistered trusts cannot operate legally and must register with the Director to comply with the Act’s requirements.
60. How are disputes between trustees resolved under the Act?
    • Disputes can be resolved through mediation, arbitration, or court intervention, depending on the terms of the trust deed and the nature of the dispute.
61. What measures ensure the transparency of trust operations?
    • The Act requires detailed record-keeping, regular reporting, and public disclosure of certain trust details to maintain transparency and accountability.
62. How are trust assets protected from creditors of the trustees?
    • Trust assets are separate from the personal assets of the trustees and are protected from their creditors, ensuring the integrity of the trust property.
63. Can beneficiaries challenge the decisions made by trustees?
    • Beneficiaries can challenge trustee decisions in court if they believe the trustees have breached their fiduciary duties or acted against the terms of the trust.
64. What are the tax implications for income generated by trust assets?
    • Trust income is subject to taxation, with specific rules and rates applicable to trusts, depending on their structure and the type of income generated.
65. How does the Act address the issue of trustee succession?
    • The Act provides guidelines for the appointment of successor trustees in case of death, resignation, or removal of existing trustees, ensuring continuity in trust administration.
66. What are the responsibilities of trustees regarding environmental and social governance (ESG)?
    • Trustees must consider ESG factors in managing trust assets, particularly for investment trusts, to align with ethical standards and beneficiary interests.
67. How does the Punjab Trusts Act 2020 facilitate charitable activities?
    • The Act includes provisions for the creation and management of charitable trusts, ensuring compliance with regulatory requirements and proper use of funds.
68. Can trusts engage in commercial activities?
    • Trusts can engage in commercial activities if allowed by the trust deed and compliant with regulatory requirements, ensuring such activities align with the trust’s objectives.
69. What are the legal remedies available to trustees against fraudulent claims?
    • Trustees can seek legal protection against fraudulent claims by providing evidence of compliance with fiduciary duties and trust terms, and by pursuing legal action against fraudsters.
70. How does the Act ensure the equitable distribution of trust income?
    • Trustees must distribute trust income according to the terms of the trust deed, ensuring fair and equitable treatment of all beneficiaries.
71. What are the procedures for amending the Punjab Trusts Act 2020?
    • Amendments to the Act can be proposed by the Provincial Assembly and must undergo the legislative process, including approval and assent by the Governor.
72. How are foreign trusts regulated under the Punjab Trusts Act 2020?
    • Foreign trusts must comply with local registration and regulatory requirements if they operate or hold assets within Punjab, ensuring alignment with domestic laws.
73. What role do beneficiaries play in the management of the trust?
    • Beneficiaries can participate in the management of the trust by providing input, requesting information, and challenging trustee decisions if necessary.
74. How does the Act address the issue of digital assets in trusts?
    • The Act provides guidelines for including digital assets in trusts, ensuring proper management and protection of these assets for the beneficiaries.
75. What is the significance of the No Objection Certificate for specialized trusts?
    • The No Objection Certificate ensures that specialized trusts comply with relevant regulations and have the approval of the concerned regulatory authorities.
76. How are conflicts between co-trustees resolved under the Act?
    • Conflicts between co-trustees can be resolved through mediation, arbitration, or court intervention, ensuring the trust operates smoothly and in the best interests of the beneficiaries.
77. What measures are in place to prevent money laundering through trusts?
    • The Act includes provisions for compliance with anti-money laundering regulations, requiring trustees to report suspicious activities and maintain detailed records.
78. How does the Act facilitate the transfer of trust property to beneficiaries?
    • The Act provides clear guidelines for the transfer of trust property to beneficiaries, ensuring legal compliance and protection of their rights.
79. What are the implications of the Punjab Trusts Act 2020 for estate planning?
    • The Act provides a robust framework for estate planning, allowing individuals to create trusts that protect assets, provide for beneficiaries, and reduce estate taxes.
80. How does the Act promote the use of trusts for investment purposes?
    • The Act encourages the creation of investment trusts, providing a legal structure for managing and growing assets, attracting investors, and ensuring compliance with financial regulations.
81. What are the duties of trustees in relation to beneficiary communications?
    • Trustees must keep beneficiaries informed about the trust’s administration, provide regular updates, and respond to their inquiries promptly and transparently.
82. How does the Act address the issue of trust property management?
    • Trustees are required to manage trust property prudently, ensuring it is used effectively for the benefit of the beneficiaries and in accordance with the trust deed.
83. What are the legal consequences of failing to disclose trust information?
    • Trustees who fail to disclose required information may face legal actions, including fines, removal from their position, and compensation claims from beneficiaries.
84. How does the Act support the creation of educational trusts?
    • The Act allows for the creation of educational trusts, providing a legal framework for managing funds and properties dedicated to educational purposes.
85. How does the Act support the creation of educational trusts?
    • The Punjab Trusts Act 2020 facilitates the establishment of educational trusts by providing a legal framework that ensures the trust’s objectives are met, funds are properly managed, and educational goals are achieved. Trustees of educational trusts must adhere to the same fiduciary duties and transparency requirements as other types of trusts, ensuring that the resources are utilized effectively for educational purposes.
86. What are the legal responsibilities of trustees in managing trust investments?
    • Trustees are required to invest trust funds prudently, adhering to the principles of diversification, risk management, and alignment with the trust’s objectives. They must avoid speculative investments and prioritize the long-term interests of the beneficiaries.
87. How does the Act regulate the dissolution of trusts?
    • Trusts can be dissolved upon the fulfillment of their purposes, by a court order, or according to the terms specified in the trust deed. Upon dissolution, trustees must ensure the proper distribution of remaining assets to the beneficiaries.
88. What are the implications of the Amendment Act 2022 on the reporting obligations of trustees?
    • The Amendment Act 2022 reinforces the reporting obligations of trustees, requiring more detailed disclosures and timely provision of information to regulatory authorities and beneficiaries, enhancing accountability and transparency.
89. How does the Punjab Trusts Act 2020 address the issue of trustee remuneration?
    • Trustees are entitled to reasonable remuneration for their services, as specified in the trust deed or agreed upon with the beneficiaries. Excessive or unjustified compensation can be challenged by beneficiaries or reviewed by the court.
90. What are the legal requirements for amending a trust deed?
    • Amendments to a trust deed must comply with the terms set forth in the original document, and may require beneficiary consent or court approval, especially if the changes affect the beneficiaries’ interests or the trust’s objectives.
91. How does the Act ensure the proper handling of trust disputes?
    • The Act provides mechanisms for dispute resolution, including mediation, arbitration, and court intervention, ensuring that conflicts are resolved in a fair and efficient manner while protecting the interests of the beneficiaries.
92. What protections are available to beneficiaries against trustee misconduct?
    • Beneficiaries can seek legal recourse against trustees who breach their fiduciary duties, including filing lawsuits for damages, removal of trustees, and seeking court orders to compel proper trust administration.
93. How does the Act support the creation of healthcare trusts?
    • The Act allows for the establishment of healthcare trusts, providing a legal structure for managing funds and properties dedicated to healthcare services, ensuring that resources are used effectively to achieve healthcare objectives.
94. What are the consequences of failing to comply with the registration requirements under the Act?
    • Trusts that fail to register as required by the Act will cease to function, and trustees may face legal actions, including fines, removal from their position, and enforcement measures to ensure compliance.
95. How does the Act address the issue of trust fund mismanagement?
    • Trustees who mismanage trust funds are liable for losses incurred and may face legal actions, including restitution, removal from their position, and potential criminal charges for fraud or embezzlement.
96. What are the duties of trustees in relation to trust accounting?
    • Trustees must maintain accurate and detailed accounts of all transactions related to the trust, provide regular financial reports to beneficiaries, and ensure that trust funds are used in accordance with the trust’s objectives.
97. How does the Act facilitate the establishment of trusts for the disabled?
    • The Act includes provisions for creating trusts that specifically benefit disabled individuals, ensuring that trust resources are managed in a way that supports their care, maintenance, and overall well-being.
98. What are the reporting requirements for specialized trusts under the Amendment Act 2022?
    • Specialized trusts must provide detailed reports to the relevant regulators, including financial statements, compliance certifications, and any other information required by the regulatory authorities to ensure proper oversight.
99. How does the Act ensure the confidentiality of trust information?
    • While the Act promotes transparency, it also includes provisions for protecting sensitive trust information, limiting public disclosure to essential details, and safeguarding the privacy of beneficiaries and trustees.
100. What are the legal remedies for beneficiaries if a trust fails to achieve its objectives?
     • Beneficiaries can seek court intervention to compel the proper administration of the trust, request amendments to the trust deed, or seek dissolution and redistribution of trust assets if the trust fails to fulfill its intended purposes.

101. How does the Act support the creation of environmental trusts? – The Act allows for the establishment of environmental trusts, providing a legal framework for managing resources dedicated to environmental conservation, restoration, and sustainability initiatives.

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