What is the difference between a trust and a bare trust?

A bare trust is established using a deed of settlement or a declaration of trust. In the simplest form of a bare trust, the assets bequeathed by the individual who set up the bare trust are owned by the trustee and beneficiary. But the trustee, in a bare trust, has no responsibilities or powers.

Can a bare trust own property?

Under a ‘bare trust’, another person holds the title to the property as a nominee. In all other respects, the child is regarded as the owner of the property and will automatically be entitled to take legal title to it when they reach the age of 18.

Why would you set up a bare trust?

Outside of buying real estate for your self managed super fund, bare trusts are often set up as a way of legally hiding your identity as a purchaser of assets and shares. This may be done for asset protection or estate planning reasons.

How do I set up a bare trust?

Under a bare trust the assets are registered through an account set up by the parents in their name and designated with the child’s initials. This establishes the bare trust with the parent holding the assets as trustee for the child as beneficiary.

Who pays the tax on a bare trust?

The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust property in their own name and the beneficiary is liable to Income Tax on income received. The beneficiaries of a bare trust need to account for any Income Tax or Capital Gains Tax on their Self Assessment tax return.

When do you need to set up a bare trust?

Under the Superannuation legislation amongst other things, you will need to set up a Bare Trust to hold the property until the purchase price is paid in full. How is a bare trust established? A Bare Trust can be established by a formal deed known as a declaration of trust or a deed of settlement.

How do you set up a personal injury trust?

What you must do is set up a trust to hold the compensation, often called a personal injury trust. The trustees then open a separate bank account, so the compensation is held separate from your personal funds.

What does bare trust have to do with bears?

First things first, a bare trust has nothing to do with bears. That was my first thought when I was Googling bare trusts after I discovered I, as executor, needed to set one up to fulfil the wishes set out in my Dad’s will. How do you even spell ‘bare trust’? (I guess I could have checked the will!)

Can a bare trust be linked to income tax?

The asset subject to the Bare Trust will always belongs to the beneficiary therefore any income tax associated tax matters will be linked back to the beneficiary. For example, each year, the rental income has to be declared by the beneficiary and not the trustee.

Can a parent set up a bare trust?

Parents can also set up bare trusts for their children but this may have income tax disadvantages (see below). For inheritance tax (IHT) and capital gains tax (CGT) the beneficiary (ie not the trustees) is treated as the beneficial owner of the property held in the bare trust.

How are assets registered in a bare trust?

How does a bare trust work in a divorce?

This establishes the bare trust with the parent holding the assets as trustee for the child as beneficiary. The child can then take advantage of their own income tax and capital gains tax allowances. A bare trust also protects the money in the event of divorce.