Advice on the Law of Trusts in Pakistan

The law relating to trusts in Pakistan (apart from Waqf which is governed by Muslim Law, the relations between members of an undivided family which are governed by customary or personal law, and public or private religious or charitable endowments) is contained in Trusts Act 1882.

A trust under the Act may be created for any lawful purpose by a person competent to contract (“author of the trust”) for the benefit of a person capable of holding property (“beneficiary”) in respect of property transferable to the beneficiary which is not merely a beneficial interest under a subsisting trust. A trustee must also be a person capable of holding property and, if the trust involves the exercise of discretion, a person competent to contract. A trustee may accept or disclaim a trust.

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Creation.

A trust of immoveable property must be declared by an instrument in writing signed by author of the trust or the trustee and, unless the instrument is a will, registered. No trust of moveable property is valid unless declared as aforesaid or unless ownership of the property is transferred to the trustee. In either case author of the trust must indicate with reasonable clarity: (a) an intention to create a trust, (b) purpose of the trust, (c) the beneficiary, and (d) the trust-property, and (unless the trust is declared by will or author of the trust is himself to be the trustee) transfer the trust-property to the trustee.

Duties and Liabilities of Trustees in Pakistan

A trustee is bound to fulfil the purpose of the trust and, except as modified by consent of the beneficiaries, obey the directions of the author of the trust given at time of its creation; to acquaint himself with, and (where necessary) secure the transfer to himself of, the trust-property; to take steps for its preservation and deal with it as carefully as man of common prudence; to convert perishable trust-property into permanent and profitable property and to prevent waste; to keep accounts of the trust-property, and to observe impartiality as between several beneficiaries.

Rights and Powers of Trustees in Pakistan

A trustee is entitled to possession of the instrument of trust and title deeds relating to the trust-property; to reimbursement of expenses and to recoup over-payments made to a beneficiary; to apply to the court for its advice or direction as to management of the trust-property; if empowered to sell the trust-property, to sell the same either together or in lots, by public auction or by private contract, and subject to such special conditions as he thinks fit; to vary investments; to apply property held in trust for a minor for the minor’s maintenance, education and advancement; to give receipts for money and moveable property; to compound debts relating to the trust; and generally to do all acts for the realization, protection or benefit of the trust-property and for the protection and benefit of a beneficiary not competent to contract.

Disabilities of Trustees.

A trustee having accepted the trust cannot renounce it, unless so empowered by the instrument of trust, except with the court’s permission or the consent of the beneficiary if competent to contract. The act contains restrictions on a trustee’s right to delegate his office and prohibits a trustee from charging for his services unless so authorized in the instrument of trust, from using the trust-property for his own profit and from buying trust property.

Vacating Office of Trustee.

Office of trustee can be vacated only by the trustee’s death or his discharge by the extinction of the trust, completion of his duties, by any means prescribed in the instrument of trust, by the appointment of a new trustee under the act, by consent of the beneficiaries if competent to contract, or by the court.

Appointment of New Trustees.

New trustee may be appointed by the person nominated in the instrument of trust or, if none, by author of the trust or the surviving or continuing trustees or the legal representative of the last surviving or continuing trustee or (with consent of the court) the retiring trustees or the last retiring trustee. Such appointment must be in writing under the hand of the person making it.

Extinction of Trusts.

A trust is extinguished when its purpose is fulfilled or becomes unlawful, when fulfilment becomes impossible or, being revocable, it is revoked. Except in case of a trust created by will, a trust can be revoked only when all the beneficiaries are competent to contract, with their consent; in exercise of an express power reserved to author of the trust; or, when the trust is for payment of debts of author of trust and has not been communicated to his creditors, at pleasure of author of the trust.

Investment.

Section 20 of  the Act lists the types of securities in which trust money must be invested (briefly, government stocks and first mortgages of immoveable property) unless the instrument of trust authorizes investment in other securities.

By virtue of Finance Act, 1998 new clause (g) is proposed to be added to § 20 of Trusts Act, 1882, whereby investment of trust money would henceforth be permitted in units issued by schemes established under Asset Management Companies Rules, 1995.