How to set up a family trust — the step-by-step

Step 1 — Fix the people and the purpose

• Settlor — who creates and funds the trust.
• Trustees — who manage it (2+ recommended; a settlor can be a trustee but should not be the sole trustee-and-beneficiary, which risks the trust being seen as a sham).
• Beneficiaries — the family members it's for. For income-splitting, name them and their shares (specific trust); for flexibility, keep discretion — but note the tax difference.

Step 2 — Draft the trust deed (the heart of it)

The deed states: name and objects, settlor and trustees, beneficiaries and shares (or the discretion), whether it is revocable or irrevocable (make it irrevocable), trustee powers, and succession of trustees. The tax outcome is decided here. Get it professionally drafted.

Step 3 — Settle the corpus

The settlor transfers an initial corpus (often a nominal ₹1,000, later topped up). Movable property can be settled by delivery; immovable property must be transferred by a registered deed.

Step 4 — Stamp duty & registration

• A trust deed on stamp paper — the duty varies by state.
• Registration is mandatory if immovable property is settled, and advisable otherwise.

Step 5 — PAN, bank account & books

Apply for the trust's own PAN, open a bank account in the trust's name, keep separate books.

Step 6 — Ongoing compliance

• File the trust's income-tax return yearly (ITR-5).
• Deduct TDS where required; pay advance tax.
• Tax audit if receipts cross the threshold.
• Keep trustee minutes and distribution records.

Common set-up mistakes

Making it revocable, settling for a spouse/minor, running a business, or an ambiguous beneficiary clause. See trust tax mistakes to avoid.