Authors: Mr. Mayank Mehta (Partner) and Ms. Aishwarya Kapoor (Principal Associate)
I. INTRODUCTION
In recent years, there has been a discernible shift in the manner in how families in India approach succession planning and inter-generational wealth arrangements. Increasingly, families, particularly high-net-worth individuals and business-owning families, are opting to establish family trusts as a preferred vehicle for estate planning, governance, and asset protection, rather than relying solely on traditional testamentary instruments such as the Wills. This transition is driven by several practical considerations, including the desire for continuity in asset management, avoidance of probate-related delays, structured distribution, and enhanced control over family wealth across generations.
While family trusts offer a flexible framework for achieving long-term estate planning objectives, they also introduce complex legal considerations that are often overlooked in practice. One such critical consideration is the rule against perpetuity, a long-standing principle of property law that restricts the ability to tie up property indefinitely and curtails attempts at controlling asset disposition beyond a statutorily permitted period.
Unlike wills, which operate upon death and typically contemplate a one-time devolution of property, family trusts frequently envisage multi-generational benefit structures, deferred vesting, and continued holding of assets for the benefit of future descendants. If not carefully structured, such arrangements may inadvertently fall foul of the rule against perpetuity, rendering the trust or certain of its provisions—void and unenforceable under Indian law.
This article deals with whether property can be validly vested in a family trust in perpetuity under Indian law, the statutory framework in relation thereto and judicial interpretation governing perpetuity. It also highlights certain drafting considerations to be taken into account while structuring the family trust.
II. FAMILY TRUST – A PRIVATE AFFAIR
Under the Indian Trusts Act, 1882 (“Trusts Act”), trusts are broadly classified as public trusts or private trusts, based primarily on the nature of their beneficiaries. Public trusts are created for the benefit of the public or a section thereof, whereas private trusts, including family trusts, are established for the benefit of specific, identifiable individuals named in the trust deed.
This classification assumes particular importance when examining the applicability of the rule against perpetuity. Public trusts, especially those created for charitable or religious purposes, are expressly exempt from the rule against perpetuity by virtue of Section 18 of the Transfer of Property Act, 1882 (“TOPA”). Such trusts may therefore subsist indefinitely without offending statutory restrictions.
Private trusts, however, do not enjoy a similar exemption. Family trusts, being private trusts, remain subject to Section 14 of TOPA, which prohibits the creation of interests that vest beyond a legally permissible time period. Consequently, private family trusts cannot validly vest property indefinitely or bind assets across successive generations without regard to statutory limits.
III. RULE AGAINST PERPETUITY
The rule against perpetuity, codified under Section 14 of TOPA, renders void any transfer of property that creates an interest which is to take effect after:
- the lifetime of one or more persons living at the date of the transfer; and
- the minority of a person who shall be in existence at the expiration of that lifetime.
In effect, this means that an interest in property must vest within the lifespan of persons alive at the time of transfer, plus the minority period of a person conceived or in existence at the end of that life period. If the vesting of property is postponed beyond this prescribed period, the provision is void.
This statutory restriction applies irrespective of the commercial or familial intent behind the arrangement and operates with equal force in the context of private trusts, including family trusts.
IV. JUDICIAL PRECEDENTS: APPLICATION TO FAMILY TRUSTS
Indian courts have consistently reaffirmed that private family trusts are subject to the rule against perpetuity and cannot be structured to vest property indefinitely.
Ajit Kumar Mitra v. Sreemuty Tarubala Dasi and Ors.
In this case, the Calcutta High Court held that a trust constituted out of family funds qualifies as a private trust and is therefore subject to Section 14 of TOPA. While declaring such a trust void, the Court explained the dual nature of perpetuity that such family trusts create:
…It is well-known that perpetuity may arise in two ways: first by taking away from the owner the power to alienate property; and secondly the creation of future remote interests. The former gives rise to the rule forbidding restraints on alienation, which strictly speaking is the rule against perpetuities; and the latter gives rise to the rule against remoteness, which is also miscalled rule against perpetuities….
The court further held that vesting property in favour of a trust for an indefinite period is opposed to public policy as the same creates an impediment on the free transferability of such property.
M. Kesava Gounder and Ors. v. D.C. Rajan and Ors.
A similar view was expressed by the Madras High Court in this case, where the Court, while declaring a perpetual family trust to be void, observed that the right of disposition or alienation of property is co-extensive with the right of ownership. Any attempt to tie down property and prevent its normal circulation was held to be legally impermissible and void.
…The underlying principle is that restraints in alienations and the rule against remoteness being the two principles well-knit as between each other ought not to be encouraged by Courts of law, which administer not only but also equity and good conscience….
This position is reinforced by authoritative commentary: Perry, in Trusts and Trustees (6th Edition), notes:
In private trusts the beneficial interest is vested absolutely in some individual or individuals who are, or within a certain time may be, definitely ascertained; and to whom, therefore, collectively, unless under same disability, it is, or within the allowed limit will be competent to control, modify, or end the trust. Private trusts of this kind cannot be extended beyond the legal limitations of a perpetuity.
This reflects the settled principle that while private trusts may be used as estate planning tools, they cannot be employed to circumvent statutory restrictions governing vesting and alienation of property.
V. RECOGNISED EXCEPTION: CONDITIONAL PUBLIC OR CHARITABLE VESTING
A notable exception arises where a private trust is drafted with a fallback to public or charitable purposes upon the failure of private beneficiaries.
Commissioner of Income-Tax v. P. Bhandari
In this Madras High Court case, the court upheld trust deeds created for the benefit of prospective daughters-in-law of minor sons. The deeds provided that if the sons did not marry within their lifetimes, the trust property would, ultimately, be used for public charitable purposes. The court held that such arrangements did not offend the rule against perpetuity, since the interests were to vest within the lifetimes of the named beneficiaries, and the ultimate fallback to charity was valid under the exception in Section 18 of TOPA.
This jurisprudence highlights that careful drafting and contingency planning can preserve the validity of trust structures while accommodating estate planning objectives.
VI. RATIONALE: PREVENTING ‘DEAD-HAND’ CONTROL
The rule against perpetuity is rooted in public policy considerations aimed at preventing “dead-hand control” over property, that is, restrictions imposed by a settlor that continue to bind property long after their death. By limiting how long interests may remain unvested, the law ensures that property remains freely alienable, economically productive, and available for circulation in society.
This rationale assumes particular relevance in the context of family trusts, where the temptation to control wealth across generations often conflicts with statutory principles of property law.
VII. PRACTICAL IMPLICATIONS FOR FAMILY TRUST STRUCTURING
In practice, many family trusts continue to contain broad clauses purporting to benefit “future generations” or “legal heirs in perpetuity.” Such provisions, if not carefully structured, are vulnerable to challenge under Section 14 of TOPA.
To ensure enforceability, family trusts must be drafted with precision, taking into account:
- compliant vesting timelines;
- clearly identifiable beneficiaries or determinable classes;
- avoidance of remote future interests; and
- use of recognised exceptions, where appropriate.
Generic provisions purporting to bind property “for the benefit of the legal heirs and their heirs indefinitely” will not withstand legal scrutiny.
VIII. CONCLUSION
Given the increasing prevalence of family trusts as instruments of estate planning, it is imperative for settlors, trustees, and advisors to be cognisant of the statutory limitations imposed by the rule against perpetuity and its applicability to private family trusts, and structure the family trusts with due care and seek advice from legal experts and advisors, when formulating family trusts and drafting family trust arrangements to ensure statutory compliance and avoid future disputes or invalidation.
Disclaimer: This article represents our understanding and interpretation of the relevant laws as on the date hereof and is provided without expressing any opinion, advice, or recommendation. The interpretations set out herein are subject to change, and there can be no assurance that any regulator, authority, or judicial body will concur with or adopt a position consistent with our views expressed in this article. This article is furnished solely for academic and informational purposes and should not be construed as legal advice or relied upon for any purpose whatsoever.
