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What is a Bare Trust?

By: J.A.J Aaronson - Updated: 29 Nov 2017 | comments*Discuss
 
Bare Simple Trust Definition Assets

There are a number of different types of trust, and this variety can be overwhelming. Many people have been told that the establishment of a trust is the best option for them; however, deciding on the correct type to use in certain circumstances can be difficult. A bare trust, also known as a simple trust, is one of the most basic and easy to understand forms of trust.

Under a bare trust arrangement, as with any trust, assets are transferred into trust by the settlor. At this point the settlor gives up the legal title to the assets; they cease to be their property, and instead become the property of the trust.

Trustees then take on the responsibility for the management of these assets, which must be dealt with in such a way as to produce the maximum benefit for the intended beneficiaries. The terms of the trust will determine how much discretion is given to the trustees.

Trustee Rights

Bare trusts leave no room for trustee discretion. When assets are transferred into these trusts, the trustees have no practical control over them; their control is in title only. Furthermore, the trustees have no discretionary power over the proceeds of the trust – they may not withhold income or capital generated by or contained within the trust.

Bare trusts are particularly useful for parents or grandparents who wish to pass on assets to their children or grandchildren. The named beneficiary has what is known as ‘absolute entitlement’ to the assets that are placed in trust, but they will be held in the name of the trustee until the child reaches the age of 18. At this point the beneficiary will be immediately able to call on the assets; the trustees will have no discretion over whether or not they should receive them.

Tax Treatment

An attractive aspect of bare trusts is their tax treatment. As the beneficiary has absolute entitlement to the assets in trust, and the legal title was given up by the settlor when they transferred the assets, there is no tax implication for the settlor. For tax purposes, the assets are treated as the property of the beneficiary. If they are a child they are unlikely to be earning and will therefore not be using up their annual tax exemptions. As such, a bare trust offers a highly tax-efficient method of ring-fencing assets for future generations.

There are, however, potential inheritance tax (IHT) implications. Assets placed in trust are treated as potentially exempt transfers, meaning that they are likely to be subject to IHT if the settlor should die within seven years of the transfer. This is only the case, however, if the total transfers made by that individual within that year total more than £3,000; gifts made below this annual limit are exempt.

Many solicitors will insist that professional help is required to establish a bare trust. In reality, however, many building societies and other savings organisations will be able to provide the forms that you need. These should be filled out and forwarded to your local Tax Office for stamping.

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[Add a Comment]
Old Bird 57 - Your Question:
My mother bought a property and apparently put it in a bare trust for my daughter as she was 16. My daughter is now 27 but my mother recently sold the property and my daughter has never received a penny. Is this legal? How can we find out if the property was definitely in a bare trust for her and also is she entitled to anything

Our Response:
Can't you just ask her? Who were the other trustees? If there is no evidence of the trust it's going to be really difficult to do anything about this. Perhaps she intended to create a trust and never did?
EstatesOrTrusts - 1-Dec-17 @ 10:26 AM
My mother bought a property and apparently put it in a bare trust for my daughter as she was 16.My daughter is now 27 but my mother recently sold the property and my daughter has never received a penny.Is this legal?How can we find out if the property was definitely in a bare trust for her and also is she entitled to anything
Old Bird 57 - 29-Nov-17 @ 2:37 PM
Do ,i need solictor to set up trust for IHT purposes .after my nil rate band allownces ,if i had etc amount ,which i would like to give it to my childern with out paying any tax,what is the best way to do it legally .
sheeli - 3-Sep-17 @ 4:34 PM
I'm a landlord with10 propertys farm land and my own home I have 3children and grandchildrenI want to set up some kind of trust to protest my propertys from IHT .
Partygirl21 - 19-Apr-17 @ 1:19 AM
@Bigtree8 - that's a good idea.
EstatesOrTrusts - 17-Sep-14 @ 2:07 PM
I am not interested in saving I h tand do not want to lose control or access to my money ! However I would like money to be available to my executors to enable them to pay tax due .ihave money in a investment bondis there a trust I can wrap this in that will fit my purpose
Bigtree8 - 15-Sep-14 @ 10:37 PM
I am trustee for my children who are under 18 the trust is called a bare trust i what to know what can i spend the money on
parent - 5-Feb-13 @ 9:36 PM
Can the allocation of monies,to beneficiaries of a "Bare Trust", be changed if one of the beneficiaries dies before the Trust is implemented by the death of the Settlor e.g Mr Settlor has made a Will which allocates equal shares of the Trust to each of three beneficiaries. One of the Beneficiaries has died and the Settlor is still living. Can the Settlor change his Will and re-allocate the monies to the remaining two beneficiaries? The exact amount of money payable on the death of the Settlor cannot be determined before the death of the Settlor as the trust is used to pay for the Settlors care in a Residential Home. Thanks
Crusher - 31-Jan-13 @ 3:44 PM
are trusts laible for IHT or CGT what conditions apply to setting up a trust and how and where can i get more info Many thanks
samad - 22-Jan-13 @ 5:40 PM
I have split my assests with my wife but both of us remain liable to to significant IHT. All our investments are in private property and we need to consider all optins to minimise tax payments now, to minimise/eradicateIHT later. I think I need a specialist tax advisor! How do I find a recognised reputable one? Regards, MJ
MJ - 4-Jul-12 @ 10:14 AM
I note that you state,"An attractive aspect of bare trusts is their tax treatment. As the beneficiary has absolute entitlement to the assets in trust, and the legal title was given up by the settlor when they transferred the assets, there is no tax implication for the settlor....." My understanding is that when a property (say a rental property) is put into a trust, it counts as a disposal of an asset and therfroe is subject to capital gains tax. I would be gratful for your comments on this.
K - 25-Jun-12 @ 3:09 PM
If sarah declares herself trustee of her own shares is this a bare trust, also what statutory formalities are required...?
J - 2-May-12 @ 6:47 PM
If a bare trust is in place and it states it's irrevocable can it be revoked?
dalek - 13-Mar-11 @ 1:12 PM
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