Section 16 of The Indian Trust Act, 1882
Where the trust is created for the benefit of several persons in succession, and the trust-property is of a wasting nature or a future or reversionary interest, the trustee is bound, unless an intention to the contrary may be inferred from the instrument of trust, to convert the property into property of a permanent and immediately profitable character. Illustrations
- (a)A bequeaths to B all his property in trust for C during his life, and on his death for D, and on D's death for E. A's property consists of three leasehold houses, and there is nothing in As will to show that he intended the houses to be enjoyed in specie. B should sell the houses, and invest the proceeds in accordance with section 20.
- (b)A bequeaths to B his three leasehold houses in Calcutta and all the furniture therein in trust for C during his life, and on his death for D, and on D's death for E. Here an intention that the houses and furniture should be enjoyed in specie appears clearly, and B should not sell them.
Summary
- When a trust is created for multiple beneficiaries who get the property one after another, the trustee must protect the future beneficiaries.
- If the trust property is of a wasting nature, meaning it loses value over time or wears out, the trustee must sell it.
- If the trust property is a future or reversionary interest, meaning a right that can only be enjoyed in the future, the trustee must also sell it.
- The trustee must convert, which means sell, these types of property and buy permanent, immediately profitable property instead.
- This duty to sell and reinvest does not apply if the trust document shows a clear intention that the beneficiaries should enjoy the actual original property.
Practical examples
FAQ
1. What does Section 16 of the Indian Trusts Act, 1882 say about perishable or wasting property?
Section 16 of the Indian Trusts Act, 1882 requires the trustee to sell property that wears out or loses value over time, and invest the money in permanent and profitable property, if the trust is for successive beneficiaries.
2. Can a trustee keep leasehold houses under Section 16 of the Indian Trusts Act, 1882?
Under Section 16 of the Indian Trusts Act, 1882, the trustee must sell leasehold houses unless the trust document shows a clear intention that successive beneficiaries should enjoy the actual houses themselves.
3. Does Section 16 of the Indian Trusts Act, 1882 apply if there is only one beneficiary?
No, Section 16 of the Indian Trusts Act, 1882 only applies when a trust is created for the benefit of several persons in succession, meaning they inherit or enjoy the property one after another.
4. What must a trustee invest the money in after selling wasting property under Section 16 of the Indian Trusts Act, 1882?
After selling wasting property, Section 16 of the Indian Trusts Act, 1882 requires the trustee to invest the proceeds in property of a permanent and immediately profitable character, which typically means the approved securities listed in Section 20.
Test yourself
Q1.Under Section 16 of the Indian Trusts Act, 1882, when is a trustee required to convert trust property into property of a permanent and immediately profitable character?
Q2.Under Section 16 of the Indian Trusts Act, 1882, which of the following is an exception to the trustee's duty to sell and convert wasting property?
Q3.Under Section 16 of the Indian Trusts Act, 1882, if a trustee sells three leasehold houses because they are of a wasting nature, how should the trustee invest the sale proceeds?
Q4.Under Section 16 of the Indian Trusts Act, 1882, what types of trust property trigger the trustee's duty to convert them into permanent and profitable property?