Private Specific Trust
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Some Relevant Points Regarding Taxability of
Private Specific Trusts
The income of a private specific trust
is generally assessable in the like manner and to the same
extent as the beneficiaries. In case the beneficiaries are
minors, the share of each of them will be included in the
total income of his parent as provided in S. 64 (1A) and
taxed accordingly.
The beneficiaries (not being minors)
can either be directly assessed or the assessment can be
made on the trustees in the manner indicated above.
The position is different if such
trust has any income assessable as profits and gains of
business. In this case, the entire income of the trust would
attract tax at the maximum marginal rate.
The only exception to (3) above, is in
the case of a trust declared by a person under a will
exclusively for the benefit of any relative dependent on him
for support and maintenance and such trust is the only trust
so declared by him. Even if the income of such trust
includes profits and gains from business, it would be
taxable at the rate applicable to the beneficiary.
While the tax advantages of private specific
trusts have been considerably whittled down as a results of the
amendments in S. 161, such trusts continue to have their
practical significance. In view of the fact that there would be
no liability on account of gift tax, the present time seems to
be opportune for private settlements.
Some Relevant Provisions of the Indian Trusts
Act, 1882
S.3 Trust is an obligation annexed to the
ownership of property, and arising out of a confidence reposed
in and accepted by the owner, or declared and accepted by him,
for the benefit of another, or of another and the owner.
A trust is created when the author of the
trust indicates with reasonable certainty by any words or act,
(a) an intention on his part to create a trust, (b) the purposes
of the trust, (c) the beneficiary, and (d) the trust property
and unless the trust is declared by will or the author of the
trust is himself to be the trustee, he transfers the trust
property to the trustees. (S.6).
A trust in relation to immovable property is
not valid unless declared by a non-testamentary instrument in
writing signed by the author or the trustee and registered, or
by the will of the author of the trust. Whereas a trust in
relation to movable property is valid if declared as aforesaid
or if the ownership of the property is transferred to the
trustee. (S.5).
The person who reposes or declares the
confidence is called the "author of the trust". Under S. 7 a
trust may be created by every person competent to contract and
even by or on behalf of a minor with the permission of a
principal civil court of original jurisdiction, but subject to
the law in force as to the circumstances and extent in and to
which the author may dispose of the trust property.
The person who accepts the confidence is
called the "trustee". Under S.10, every person capable of
holding property may be a trustee. Where however, the trust
involves the exercise of discretion, he cannot exercise it
unless he is competent to contract.
A trustee is entitled to reimburse himself
all expenses properly incurred in the execution of the trust, or
the realisation, preservation or benefit of the trust property
or the protection or support of the beneficiary. (S.32). In the
case of a private specific trust empowering the trustees to
carry on a business, the trustees would be entitled to the
indemnified out of the trust estate
against any liabilities which they have properly incurred in the
course of carrying on such business.
The person for whose benefit the confidence
is accepted is called the "beneficiary". Every person capable of
holding property may be a beneficiary. (S.9).
The subject matter of the trust is called
"trust property", S.8 provides that the subject matter of a
trust must be property transferable to the beneficiary. It must
not be merely a beneficial interest under a subsisting trust.
The "beneficial interest" or "interest" of
the beneficiary is his right against the trustee as owner of the
trust property;
The instrument by which the trust is declared
is called the "instrument of trust".
S.4 A trust may be created for any lawful
purpose. The purpose of a trust is lawful unless it is (a)
forbidden by law, or (b) is of such a nature that, if permitted,
it would defeat the provisions of any law, or (c) is fraudulent,
or (d) involves or implies injury to the person or property of
another, or (e) the Court regards it as immoral or opposed to
public policy.
Every trust of which the purpose is unlawful
is void. And where a trust is created for two purposes, of which
one is lawful and the other unlawful, and the two purposes
cannot be separated, the whole trust is void.
It is to be noted that a trust is against
public policy when it violates the rule against perpetuity. This
rule comes into play when under a trust, the vesting of property
is postponed beyond the lives in being and 18 years thereafter.
Such trust is void. There are exceptions under this rule as for
instance, in the case of charitable trusts.
Specimen
Private Specific Trust
This Indenture made at Mumbai this
day of 2005 between of Mumbai
Inhabitant, hereinafter called "The Settlor" (which expression
shall include his heirs, executors and administrators wherever
the context so requires or admits) of the One Part and
and all of Mumbai, Indian
Inhabitants, hereinafter called "the Trustees" (which term so
far as the context will admit, will mean and include the
survivors or survivor of them and the heirs, executors and
administrators of such survivors or survivor and the Trustees or
Trustee for the time being of these presents) of the Other Part.
Whereas:
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The Settlor being absolutely seized
and possessed of or otherwise well and sufficiently entitled
to a sum of Rs. (Rupees only) is desirous
of settling the said sum of Rs. (Rupees
only) for the benefit of A and B.z
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At the request of the Settlor, the
Trustees have agreed to act as the First Trustees of these
presents, as is testified to by their joining in and
executing these presents.
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In order to effectuate the said desire
the Settlor has, prior to the execution of these presents
handed over to the Trustees the said sum of Rs. (Rupees
only) to be held by the Trustees upon the
Trusts and with and subject to the powers, provisions,
declarations and agreements hereinafter contained of and
concerning the same.
Now This Indenture Witnesseth As Follows:
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Interpretation
In this Deed wherever the context permits
the following terms shall mean:
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"Beneficiaries" means
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in relation to the income, A
and B or their legal heirs
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in relation to the corpus, C
and D or their legal heirs
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"Trustees" means the trustees for
the time being hereof
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"Trust Fund" means:
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the sum of Rs. (Rupees
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all moneys investments on
other property hereafter paid or transfered by any
person or persons as may be accepted by the Trustees
and additions to the Trust Fund
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the moneys, investments and
property from time to time representing the said
money, property and additions.
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"Vesting date" means the day
of 20 or such other earlier date as may be
determined by the trustees for the time being.
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In consideration of the natural love
and affection the Settlor bears towards the said A and B and
in consideration of the premises and diverse other good
causes and consideration herein hereunto moving, he, the
Settlor, Doth Hereby Declares that he has paid, handed over
and transferred and Both Hereby confirms such payment,
handing over and transfer to the Trustees of the said sum of
Rs. (Rupees only) and the full benefits
and advantages thereof And All the right, title, interest,
property, claim and demand whatsoever of the Settlor unto
and upon the said sum of Rs. To Have And To Hold the
same unto the Trustees and the investments for the time
being and from time to time representing the same upon the
trusts and for the use, purposes and benefits and with and
subject to the powers and provisions hereinafter declared
and contained of and concerning the same.
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The name of the Trust shall be
" Trust".
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The Trustees shall hold and stand
possessed of the Trust Fund upon the following trusts
subject to the power provisions herein continued.
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To collect, receive and recover the
income and interest on the Trust Fund and the investments
for the time being and from time to time representing the
same and pay thereout all rents, rates, taxes, assessments
and charges for the collection thereof and the insurance
premium in respect of any immovable property for the time
being forming part of the Trust Fund for securing the same
against any loss or damage as the Trustees may deem proper
and shall pay out the said rents, dividends, interest and
other income, such amounts as the Trustees may in their
discretion deem necessary for keeping the said immovable
property in a proper state of repair and all other
expenses of and incidental to the preservation of the
Trust Fund and for the administration of the Trust hereby
created as the Trustees may deem proper;
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Until the vesting date, Trustees
shall apply and expend the net income of the Trust Fund
for the benefit of the said A and B in equal shares.
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In the event of the death of A or B
prior to the vesting date one-half of the net income of
the Trust Fund shall be applied and expended for the
benefit of the surviving beneficiary and the other half of
the net income shall be applied and expended for the
benefit of the legal heirs of the deceased beneficiary; if
there be no surviving beneficiary, one-half share of the
net income shall be applied and expended for the benefit
of the legal heirs of A and B the other half share for the
benefit of the legal heirs of B.
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On the vesting date, the Trustees
shall pay, distribute, transfer, convey and assign the
Trust Fund to C and D in equal shares; provided that if
the said C and /or D shall not be in existence on the
vesting date, the Trustees shall pay and transfer the
Trust Fund in equal shares between the surviving
beneficiary and the legal heirs/children of the deceased
beneficiary and if neither C nor D are living on the date
of distribution, the Trust Fund shall be divided one-half
each between the legal heirs/children of C and the legal
heirs/children of D.
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The Trustees shall have the power to
receive and accept gifts, donations of any moveable or
immoveable properties and such amounts as and when received
shall form part of the Trust Fund.
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The Trustees will be entitled to
invest all moneys liable and authorised in any one or more
of the following:
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in any of the modes of investments authorised by the Indian Trust Act;
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in moveable properties including
shares, debentures, bonds, or securities of any joint
stock company, corporation, Unit Trust of India or Mutual
Funds or other Institutions;
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as deposits (current, saving, fixed
or any other) with banks, joint stock companies or
partnership firm on such terms and conditions as the
Trustees may in their discretion think fit;
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in the purchase of any immovable
property, whether freehold or leasehold;
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in granting of loans to
individuals, firms, association of persons, joint stock
companies or otherwise whatsoever;
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in carrying on business either by
themselves or in partnership or otherwise as they may in
their discretion think fit and close and restart any
business and utilise the profits derived therefrom for the
objects aforesaid.
The Trustees shall have power to vary
from time to time the investments for others of the same or
of a like or different nature.
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Without affecting the generality of
the powers, provisions and authorities vested in the
Trustees under these presents, the Trustees shall have, in
addition thereto and not in substitution thereof, the
following powers and shall be entitled to execute all acts,
documents and things necessary ancillary or incidental
thereto that is to say:
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To open and operate a Banking
account/accounts of the Trust in any Bank or Banks of
repute, in the name of the Trust or in the name of all of
them. All amounts received by way of dividends, interest,
rent, profits or other income shall be credited to the
said amounts. Such accounts shall be operated by any one
of the Trustees.
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To borrow moneys or raise loans and
funds required for any purpose, power or provisions either
directly or indirectly connected with the objects of this
Trust or for any object incidental these presents.
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To draw, make, accept, endorse,
discount, execute and issue promissory notes, bills of
exchange and other negotiable instruments.
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To purchase, take on lease or
sub-lease, leave and licence basis co-operative schemes or
any other arrangements of in exchange hire or otherwise
acquire or deal with or own any immovable or movable
property and any rights, benefits or privileges which the
Trustees may think necessary or convenient.
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To purchase on ownership basis or
take on rent or compensation residential flats, business
premises, industrial sheds or factory premises, godown or
open plot of land and let out the same or give on leave
and licence basis or for compensation or warehousing
charges or storage charges.
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To construct, develop, maintain and
alter any buildings, structures, industrial estates,
factories or works of any nature whatsoever unnecessary or
convenient or which the Trustees may in their absolute
discretion think fit.
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To sell, improve manage, develop,
exchange, lease, mortgage, charge, pledge, hypothecate,
dispose of or deal with all or any part of the Trust Fund
and premises hereby settled or any part or parts thereof.
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To organise agencies or offices or
to make any other arrangements necessary for conducting
and managing the Trust and to appoint such Agents and
Representatives in that behalf as the Trustees may in
their absolute discretion think fit.
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To enter into partnership or joint
ventures or other arrangements with any other person,
firm, body corporate society, federation, association of
individuals or otherwise, howsoever, for carrying on any
business or businesses, industries or commercial
activities for and on behalf of the Trust and to appoint
any one or more of Trustees to be partners,
representatives or nominees or nominee for and on behalf
of the Trust to carry out or implement any such
arrangements, as the case may be.
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The Trustees may deposit any
documents of title or any other papers or documents or
certificates held by them relating to any movable or
immovable property or relating to the Trust under these
presents with any Bank or Bankers or any other persons,
firms or company whatsoever for safe custody and may pay
any such charges payable in respect of such deposits.
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The Trustees, at their uncontrolled
discretion instead of acting personally may employ and pay
any agent, person or representative including any Bank or
Insurance Company to transact any business or to do any
act whatsoever in relating to the Trustees of these
presents including the receipt and payment of moneys
without being liable for loss and shall be entitled to be
allowed and paid all charges and expenses incurred
thereby.
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The Trustees shall be entitled from
time to time to appoint on such terms as they may
determine any manager or managers, officers, clerks or
care-takers for any immovable or movable property subject
to the provisions of this Trust and to pay them salary,
wages, emoluments, fees, remuneration etc. as they in
their absolute discretion think fit.
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The Trustees shall have power to
delegate any Power of Attorney to any Trustee or other
person whomsoever any powers implied by law or conferred
by stature or vested in the Trustees by these presents but
the Trustees shall not be held liable or responsible for
the acts or defaults of any such person or persons but
only for their own respective acts or defaults.
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In the event of the Trustees
purchasing an immovable property or properties out of money
belonging to the Trust, it shall be lawful for the Trustees
to repair, demolish or rebuild them as well as any other
buildings or structures, out of the Corpus of the Trust Fund
and to give lease of such properties on such term/terms of
year or any monthly tenancy at such rent or rents and upon
such conditions as the Trustees may in their absolute
discretion think fit and to make allowance with tenants and
other including power to condone breaches of covenants and
to accept surrender of lease or tenancies and generally to
have all powers of management of such immovable property or
properties as absolute owners without being responsible for
loss or damages that may happen thereby It Shall Also Be
Lawful for the Trustees at any time in their discretion to
sell such immovable property or properties or part or parts
thereof or easements, rights, or privileges exercised or
enjoyed in over for or upon or under such immovable property
or properties and upon any such exchange to give or receive
moneys for equality or exchange.
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The Trustees may make any such sale as
aforesaid either by public auction or private contract and
may make or agree to any stipulations or provisions as to
title to evidence or commencement of title or otherwise to
any conditions of sale or contract for sale or exchange and
may buy in at any sale by auction and rescind or vary any
contract and enter into any new contract for any of the
purpose aforesaid without being responsible for any loss.
The Trustees may execute assurance give effectual receipts
for effectuating any such sale or exchange which they may
think proper.
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The Trustees shall frame rules and
regulations for the administration of the Trust and to
conduct the affairs thereof, as they deem fit.
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In the event of any difference
between the Trustees concerning the affairs of the Trust,
the decisions of the majority of the Trustees shall prevail.
The Chairman of the meeting shall have a casting vote.
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There shall not be at any time less
than 2 or more than five Trustees of these presents. The
Trustees shall have power to add to their number, subject
however, to the maximum limit provided herein.
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Any Trustee for the time being
thereof may at any time retire from the Trust on giving not
less than one months notice in writing of her/his intention
to do so to each of the other Trustees for the time being
hereof and upon expiry of such notice the Trustees giving
such notice shall cease to be Trustee of these presents.
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Every one of the Trustees for himself
or herself doth hereby agree that in the event of his or her
vacating the office of the Trustees, he or she shall do all
necessary acts, deeds and things for duly transferring over
the Trust Fund to the name or names of the new and/or
additional Trustees or Trustee. All costs attending such
transfer shall be borne out of income of the Trust Fund.
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If the Trustees hereby appointed or
any of them or any future Trustees or Trustee hereof shall
die or go to reside abroad for more than two consecutive
years or shall desire to retire from or refuse or become
unfit or incapable to act in the Trusts or these present or
become insolvent or the Trustees shall be desirous of
appointing an additional Trustee or additional Trustees
which he/she or they are hereby authorised to do, then it
shall be lawful for the surviving or continuing Trustees or
Trustee of these presents and if thereby no surviving or
continuing Trustees then for the retiring or refusing
Trustees or Trustee and failing them for the heirs,
executors or administrators of the last surviving Trustee to
appoint any other person or persons to be a Trustee or
Trustees in place of Trustees or Trustee so dying or going
to reside abroad for more than two consecutive years or
desiring to be discharged or refusing or becoming unfit or
incapable to act or being adjusted insolvent or as
additional Trustee or Trustees as aforesaid with liberty
upon such appointment to increase or diminish the number of
Trustees for the time being but so that the number of
Trustees of these presents shall at no time be less than two
or more than five And Upon every such appointment the Trust
Fund hereby settled and the investments for the time being
representing the same shall be so transferred to become
vested in the Trustee or Trustees so appointed and every
Trustee or appointed may as well before as after such
transfer act as fully and effectually as if he/she/they had
been originally appointed a Trustee Provided Always that
without prejudice to any other provisions of the law a
Trustee of these present shall stand discharged from his/her
office of Trustee or on his/her tending resignation of
his/her office and on the same being accepted by the
remaining Trustees of these presents Provided Further that
notwithstanding anything herein contained to the contrary it
shall be for the Trustees if they all unanimously agree in
that behalf to appoint a Bank or a Company or the official
Trustee of Bombay as a Trustee of these presents either
solely or jointly with other Trustees and in such event the
fees payable to such Bank or Company or the Official Trustee
as a Trustee shall be paid out of the Corpus of the Trust
Fund and the annual fees or other charges payable to such
Bank or Company or Official Trustee shall be paid out of the
income of the Trust Fund, Provided Further that in the event
of any Bank or Company being appointed a Trustee of these
presents, the Trustee shall have power to adopt and add to
the provisions of this Trust Deed such new clauses and
powers relating to the administration of the Trust and the
custody of the Trust Fund as such Bank or Company reasonably
require and as are usually included in Trusts in which such
Bank or Company may have been appointed a Trustee.
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It shall be lawful for the Trustees
to borrow moneys either on the security of the Trust Fund or
otherwise, for the purpose of making any payment in respect
of any estate duty or gift tax or any other tax or duty in
connection with the corpus of the Trust Fund or any part
thereof so that the moneys may be borrowed at such rate of
interest and on such terms as the Trustees may in their
absolute discretion think proper Provided That any estate
duty gift tax or any other tax or duty payable in respect of
the Trust Fund shall be payable out of such fund
respectively and the Trustees shall be entitled to be
reimbursed in respect thereof from such fund liable for the
same and to keep such fund with themselves until any such
duty or tax in connection therewith shall have been paid or
satisfied or until the statutory period in respect of the
payment thereof shall have expired.
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These Trusts shall be and remain
irrevocable for all times and the Settlor does hereby also
release, relinguish, disclaim, surrender and determine all
rights or powers, if any, which may have been reserved to
him or which may be regarded as having been reserved to him
either by these presents or otherwise howsoever to restore
to him to reclaim any interest in the Trust Fund and the
investments for the time being representing the same or the
income thereof to the Intent that the Trust Fund may be held
by the Trustees upon the Trusts and with and subject to the
powers, provisions, agreements and declarations contained in
these presents to the entire exclusion of the Settlor and of
any benefit to the Settlor.
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And it Is Hereby Further Agreed and
Declared that the Trustees for the time being of these
presents shall be respectively chargeable only for such
Trust Funds and the income including moneys, stocks, funds,
shares and securities as they shall respectively actually
receive notwithstanding their respectively signing any
receipt for the sake of conformity and shall be answerable
and accountable only for their own acts, receipts, neglects
or defaults and not for those of the others or other of them
nor for any Bankers, Broker, Auctioneer or Agent of any
other person or persons into whose hands any Trust Fund or
Trust income may be deposited or come nor for lending on any
security with less than marketable title nor for the
insufficiency or deficiency of any stocks, funds, shares,
securities nor any other loss unless the same shall happen
through their own wilful default or dishonestly respectively
And Also that the Trustees or Trustee for the time being of
these presents may reimburse themselves or himself/herself
and pay or discharge out of the Trust property or Fund all
expenses incurred in or about the execution of the Trust or
powers of these presents.
In Witness Whereof the parties hereto have
hereunto set and subscribed their respective hands and seals the
day and year first hereinabove written.
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Signed, Sealed and Delivered
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by the withinnamed "Settlor"
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in the presence of
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Signed, Sealed and Delivered
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by the withinnamed "Trustees"
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in the presence of |
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