- Knowledge Centre
A bare trust is so called because it is a very basic form of trust.
In a bare trust, beneficiaries have the absolute right to the capital and assets within the trust, as well as the income generated from these assets.
Bare trusts are widely used by parents and grandparents to transfer assets to their children or grandchildren.
The trustee has no discretion in directing the trust's income or capital.
A bare trust is also referred to as a simple trust.
Income generated from trust assets in the form of interest, dividends or rent is taxed in the hands of the beneficiary, making it a tax-efficient way of transferring assets to descendants.
There is no tax implication for the settlor (himself, as settlor) who sets up a bare trust. This is because he is giving up legal title to the assets when they are transferred to the trust.
A major disadvantage with a bare trust is that the beneficiaries cannot be altered once the trust has been set up.
Another negative aspect is that there may be potential capital gains tax and IHT implications in some jurisdictions.
A Bare Trust can be a useful solution, but whether it is applicable has to be determined on a case-by-case basis.
The case for using trusts in general also needs careful consideration on an individualised basis.
If you already have a trust structure in place and would like a second opinion - or, if you are wondering whether the utilisation of a trust could be of benefit in your personal circumstances, contact our trust experts for comprehensive, highly qualified advice.