Extinction of a Trust

Introduction

A trust does not continue forever. It comes to an end when its purpose is completed or when it cannot legally or practically continue. The Indian Trust Act, 1882 provides clear rules on when a trust is extinguished.

Meaning / Definition

Extinction of a trust means the termination (end) of the trust relationship. Once a trust is extinguished, the trustee’s duties come to an end and the trust property is dealt with as per law.

Modes or Types

When the purpose is fulfilled

A trust is extinguished when its objective is achieved.

Example: If a trust is created for the education of certain children and the property is to be distributed after they become adults, the trust ends when education is completed and property is distributed.

When the purpose becomes unlawful

A trust is extinguished if its purpose becomes illegal. As per law, a purpose is unlawful if:

• It is forbidden by law
• It defeats the provisions of law
• It involves fraud (cheating or dishonest conduct)
• It causes injury to another person or property
• It is opposed to public policy (against public interest)

When performance becomes impossible

If the trust cannot be carried out due to destruction of property or other reasons, it is extinguished.

Example: If trust property is destroyed by fire, making the purpose impossible, the trust ends.

Revocation of the trust

A trust may be revoked (cancelled) in the following cases:

Revocation by will

A trust created by a will can be revoked by the testator during his lifetime.

By consent of beneficiaries

If all beneficiaries are competent (legally capable), they may agree to revoke the trust.

By reserved power

If the settlor has reserved a right to revoke in the trust deed, he may exercise that power.

Trust for payment of debts

If a trust is created to pay debts and has not been communicated to creditors, it may be revoked by the settlor.

Effect of revocation

Revocation does not affect acts already done by the trustee. Past acts remain valid and are not reversed (no retrospective effect) (Section 79).

Practical Example

A creates a trust to build a school. Before construction begins, the government bans construction in that area. Since the purpose becomes unlawful, the trust is extinguished.

Summary

• A trust ends when its purpose is fulfilled
• It is extinguished if the purpose becomes unlawful
• Trust ends if performance becomes impossible
• Revocable trusts can be cancelled under specific conditions
• Consent of all competent beneficiaries can revoke a trust
• Past acts of trustees remain valid even after revocation