Bare Trust arrangements: what you need to know before getting started

Bare Trusts

When our assets are not owned by a company or in a trust, we usually own our assets in our personal name. However, you can ask someone else to hold property or assets in their names, on your behalf. This arrangement is called a bare trust.

What is a Bare Trust?

A bare trust comprises two parties. The first is the beneficiary. This is the person who owns the asset personally at the start of the trust. They ask someone else to then hold the asset in their name. This person is known as the trustee(s).

How are Bare Trusts created?

A bare trust can be created intentionally, as a documented or undocumented arrangement between the beneficiary and trustee. If the bare trust is documented on paper, both parties usually have a clear understanding of the responsibilities and expectations of each other.

However, a bare trust can also be formed unintentionally. This might arise when you trust someone to look after an asset for you, because you cannot, or do not wish to, hold that asset in your own name.

Responsibilities of a Trustee in a Bare Trust

The only job a trustee of a bare trust has is to ensure the asset they are holding is being treated as the beneficiary wants it to be. The trustee holds no power to make any decisions about the use or treatment of the asset.

This also means that unless otherwise stipulated, the trustee does not have any duties in relation to the asset being held by them, other than the general maintenance of the asset. The beneficiary would need to ensure that the asset is performing as they would want it to be and direct the trustee to make any changes necessary to ensure this.

Key considerations for beneficiaries

It is important to note that if someone is holding assets on your behalf, they have no equitable or beneficial right to those assets. The beneficiary can continue to use and enjoy the asset while it is being held in a bare trust.

Ending a Bare Trust

In a bare trust, when the beneficiary decides they want the asset transferred back into their name, they can request this from the trustee. Assuming the beneficiary is over 18 years old and is mentally capable (hasn’t been declared mentally incapable by a doctor), the trustee must transfer the asset back to the beneficiary, and the bare trust comes to an end.

Want to learn more about Bare Trusts?

If you are considering setting up a bare trust arrangement or wish to know more, feel free to contact our Trust team today.