Section 40 of The Indian Trust Act, 1882
A trustee may, at his discretion, call in any trust-property invested in any security and invest the same on any of the securities mentioned or referred to in section 20, and from time to time vary any such investments for others of the same nature: Provided that, where there is a person competent to contract and entitled at the time to receive the income of the trust-property for his life, or for any greater estate, no such change of investment shall be made without his consent in writing.
Summary
- This section gives a trustee the power to change and manage the investments of trust money.
- A trustee can withdraw or liquidate trust funds invested in any security, a process called calling in.
- The called-in funds must be reinvested in the authorized securities mentioned or referred to in Section 20 of this Act.
- A trustee can periodically vary or swap these investments for other authorized securities of a similar nature.
- If there is a beneficiary who is competent to contract and currently entitled to receive the trust income for life or a larger interest, the investment cannot be changed without their written consent.
Practical examples
FAQ
1. Can a trustee change how trust money is invested under Section 40 of the Indian Trusts Act, 1882?
Yes, under Section 40 of the Indian Trusts Act, 1882, a trustee has the discretionary power to call in any invested trust property and reinvest it in any of the securities mentioned or referred to in Section 20, and vary these investments from time to time.
2. Do trustees need consent to change investments under Section 40 of the Indian Trusts Act, 1882?
Under Section 40 of the Indian Trusts Act, 1882, if there is a beneficiary who is competent to contract and entitled to receive the trust income for life or a larger estate, their written consent is mandatory before any change of investment can be made.
3. What types of investments can a trustee choose when varying investments under Section 40 of the Indian Trusts Act, 1882?
When varying investments under Section 40 of the Indian Trusts Act, 1882, a trustee must reinvest the trust property only in the securities or classes of securities mentioned or referred to in Section 20 of the Act.
4. Can a trustee vary investments if the life income beneficiary is a minor under Section 40 of the Indian Trusts Act, 1882?
Yes, since a minor is not competent to contract, the proviso in Section 40 of the Indian Trusts Act, 1882, does not apply. The trustee can vary the investments at their own discretion without needing the minor's written consent.
Test yourself
Q1.Under Section 40 of the Indian Trusts Act, 1882, what condition must be met for a trustee to change or vary trust investments when there is a life-income beneficiary who is competent to contract?
Q2.Under Section 40 of the Indian Trusts Act, 1882, when a trustee calls in trust property invested in a security, what limits are placed on where they can reinvest those funds?
Q3.Under Section 40 of the Indian Trusts Act, 1882, if a beneficiary entitled to the trust income for life is a minor, does the trustee require written consent to vary the trust investments?
Q4.Under the Indian Trusts Act, 1882, while Section 36 gives a trustee general authority to perform all reasonable and proper acts for managing trust property, why can they not use this general power to vary trust investments without the written consent of a competent life-income beneficiary as required by Section 40?