Incorporation of Trust

According to Section 314 of National Civil Code, 2017 (“Code”), a trust shall be incorporated if any person withholds the possession and ownership over the property for the benefit of other people. The beneficiary people may be persons taking benefit from trust, group of people, the general public, organized unorganized institutions.

For the purposes, the term “beneficiary” means a person, group, general public, body whether incorporated or unincorporated or community getting the benefit from the trust property.

Types of Trust

There are 2 types of trust namely; 

(i) Public Trust and 

(ii) Private Trust. 

A trust established for the accomplishment of the following object shall be deemed to be a public trust:

1. To establish, operate and use a fund for infrastructures of economic development or other development works,
2. To establish and operate a fund necessary for the development of skills, creation of employment opportunities and development of the people with low income,
3. To operate social welfare programs,
4. To establish and operate such educational and academic institutes like schools, colleges and universities as may be useful for the general public,
5. To establish and operate clinics such as hospitals and health posts for public purposes,
6. To protect natural, historical or cultural heritage or to promote such act,
7. To operate programs for the protection of wildlife, aquatic animals or environment,
8. To operate programs for the protection of interest, welfare or upliftment of various classes, groups or communities,
9. To operate programs relating to sports,
10. To carry out service-oriented welfare programs,
11. To operate rescue works,
12. To establish shrines, temples, monasteries, domes, mosques, churches or carry out similar other religious activities,
13. To operate other public programs for the interest of the public.

While a trust which is established with the object to render benefit, advantage or facility to any particular person or group shall be deemed to be a private trust. However, if a trust is established to accomplish both public and private objectives, such a trust shall be deemed to be a public trust.

Registration of Trust

A person who intends to establish a trust shall make an application, setting out the following matters, to the Registrar:

1. Value and details of the property held for the trust,
2. Beneficiary, and benefit and facility to the beneficiary, the terms, and limitation thereof,
3. If the trust is to be established for any particular period, matter relating thereto,
4. Other necessary details.

For the purposes “Registrar” means the authority provided for by law for the registration, supervision, and liquidation of trusts, and this term also includes the Land Revenue Officer in the concerned district if such authority is not so provided for; and “Trustee” means the person who is responsible for the operation and management of a trust property.

In making an application the following documents shall also be submitted with the application:

1. Memorandum of incorporation of the trust,
2. Trustee’s name and photocopy of the deed relating to his or her consent,
3. Photocopy of the deed, if any, executed for the establishment of the trust,
4. Photocopy of a reliable deed relating to the trust settler’s identity, and, in the case of the trust settler being a body corporate, certified copies of the documents relating to the incorporation of the body corporate and of the decision by such a body corporate concerning the establishment of trust,
5. Receipt of payment of the fees chargeable by law for the registration of a trust.

Matters to be disclosed in the Memorandum of Incorporation

The following matters shall be set out in the memorandum of incorporation of a trust:

1. Names, surnames and addresses of the founders of the trust, and, if a body corporate is the founder, names, surnames, and addresses of the directors of such body,
2. Objects and nature of the trust,
3. Names, surnames and addresses of the trustees, details of the business to be performed by them, and, if a body corporate is a trustee, name, surname, and address of the person designated by the body to act as the trustee,
4. Details of the beneficiaries,
5. Method of use of the trust property,
6. Details of the tenure of the trustee, if any, so specified,
7. If the beneficiaries are entitled to remuneration or other facilities, details thereof and limitation,
8. If the trust is intended to be established for a certain period, details of such a period,
9. In the event of termination of the trust, consequences thereof,
10. Provisions relating to the operation, management, and monitoring of the trust property,
11. Other necessary matters.

Establishment of Trust by the Foreigner

If a foreign person intends to establish a trust, the person shall make an application, upon fulfilling the procedures as referred above. A foreign person may be the founder of the trust to be so established. While at least one-third of the trustees of a trust established shall be Nepali citizens having permanent residence in Nepal. However, a foreign person is not allowed to establish a trust having objectives to establish shrines, temples, monasteries, domes, mosques, churches or carry out similar other religious activities,

Power of the Registrar

If an application is made for the establishment of a trust, the Registrar shall make necessary inquiry into the objects of the trust and the details of the property proposed for the establishment of the trust, and, if it appears reasonable to register the trust, register the trust and issue the trust registration certificate, within thirty-five days of the making of such application. However, a private trust may be operated even without registration. Provided that if a person so operates a private trust, the person shall give information thereof to the concerned Registrar.

The Registrar may refuse to register a trust in any of the following circumstances:

1. If the details, documents or fees are not mentioned or paid,
2. If the name of the trust resembles with the name of any other trust already registered before the registration of the trust applied for,
3. If the objects or terms of the trust appear to be inappropriate or undesirable for reasons of public interest, decency, courtesy or public order, are not lawful or are not capable of being implemented owing to their uncertainty or vagueness.
4. If a trust is not capable of being registered, the Registrar shall give information thereof, along with the reason for refusal, to the applicant within thirty-five days. If upon receipt of information, the applicant makes necessary corrections and an application again for the registration of the trust, the Registrar shall register the trust and issue the registration certificate, within fifteen days of the making of such an application.

Transfer of property for incorporation of trust:

The trust founder shall transfer the property settled for the trust to the trustee within three months of the establishment of the trust. If the property to be transferred is immovable, such property shall be deemed to have been duly transferred only when it is transferred under law. A foreign person that establishes trust in Nepal shall remit into Nepal a movable property equivalent to at least one million United States Dollars through regular banking channels and hand over the same to the trustee within three months. The information of the hand-over of the movable property shall be given to the Registrar.

In the event of failure to transfer the property within the time-limit, the registration of such a trust shall be deemed to be void ipso facto and the trust shall be deemed to have been dissolved.

Operation and management of trust property

The trustee shall, subject to the terms and restrictions outlined in the memorandum of incorporation, operate and manage the trust property. Except as otherwise provided for in the memorandum of incorporation, the trustee shall, in operating and managing the property not sell, mortgage, or otherwise transfer title to, the immovable property or any part thereof without prior permission of the concerned Registrar. In asking for prior permission of the Registrar the reason for the sale, mortgage of, or transfer of title to, such property, and the reasons and grounds that it may result in more benefit to the beneficiary shall be set out.

Adwaita Advisors

September, 2024