A Bare Trust is a simple and flexible type of trust that allows assets to be held by a trustee for a beneficiary. The trustee holds the assets in their name but is obligated to transfer them to the beneficiary upon request. This type of trust is often used for straightforward asset transfers and is particularly common in situations where assets are being held for minors until they reach adulthood.
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Bare Trusts are among the simplest forms of trusts, providing clear and direct control over the trust assets. The beneficiary has an immediate and absolute right to both the capital and income of the trust, making this a transparent and straightforward option for asset management.
The beneficiary has complete control over the assets once they reach the age of majority, typically 18 in England. This means they can demand the transfer of the trust assets at any time once they are legally an adult, providing them with flexibility and autonomy over their inheritance.
In a Bare Trust, the beneficiary is responsible for paying tax on income generated by the trust assets. This means that any interest, dividends, or rental income received by the trust will be taxed as if it were received directly by the beneficiary. This can be advantageous if the beneficiary's income is low, resulting in a lower tax rate.
Similarly, any capital gains made within the trust are taxed at the beneficiary's rate. This includes gains from the sale of stocks, property, or other assets held in the trust. Beneficiaries can take advantage of their annual capital gains tax allowance, potentially reducing the overall tax liability.
Assets held in a Bare Trust are considered part of the beneficiary's estate for Inheritance Tax purposes. This means that the assets are subject to Inheritance Tax if the beneficiary dies and the value of their estate exceeds the threshold for taxation.
Bare Trusts allow for a wide range of investments, including cash, stocks, bonds, and property. The trustee manages these assets according to the terms of the trust and in the best interests of the beneficiary. The flexibility in asset choice makes Bare Trusts a versatile tool for financial planning.
Bare Trusts are commonly used to hold assets for children until they reach adulthood. Parents or grandparents often use Bare Trusts to gift money or other assets to minors, ensuring that the assets are managed responsibly until the beneficiary is mature enough to take control.
The straightforward nature of Bare Trusts makes them easy to set up and manage. There are no complex legal requirements, and the administrative burden is minimal compared to other types of trusts. This simplicity can result in lower costs and less hassle for the trustee and beneficiary.
One of the main risks of Bare Trusts is the lack of trustee discretion. The trustee cannot make decisions about when or how to distribute the trust assets beyond following the beneficiary's instructions. This can be a disadvantage if the beneficiary is not financially responsible upon reaching adulthood.
Once assets are placed into a Bare Trust, they cannot be taken back by the person who created the trust. This irrevocability means that careful consideration must be given before establishing a Bare Trust, as it cannot be undone if circumstances change.
Bare Trusts offer a straightforward and flexible way to manage and transfer assets, particularly for minors. However, understanding the tax implications and ensuring the trust aligns with your overall financial strategy is crucial. Consulting with an independent financial adviser from Continuum Wealth can help you navigate the complexities and maximise the benefits of a Bare Trust.
For more information or to discuss your individual circumstances, feel free to contact us.
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Yes, there can be tax implications. For instance:
No, once a Bare Trust is set up and the terms are agreed upon, they cannot be changed. This is because the beneficiary has an immediate and absolute right to the trust's assets.
No, the beneficiary of a Bare Trust cannot access the assets until they reach the age specified in the trust deed, usually 18 in the UK. However, once they reach this age, they have full control over the assets.
At Continuum Wealth, we provide guidance on setting up and managing Bare Trusts. Our team can help you understand the benefits and implications, draft the necessary legal documents, and manage the investments within the trust to ensure they grow effectively. Contact us today to learn more about how we can assist you with your trust needs.
Setting up a Bare Trust involves:
The primary benefits of a Bare Trust include:
The trustee is responsible for managing the trust's assets in the best interests of the beneficiary. This includes making investment decisions, maintaining records, and ensuring that the assets are transferred to the beneficiary when they reach the specified age.
A Bare Trust, also known as a Simple Trust, is a type of trust where the beneficiary has an immediate and absolute right to both the trust capital and the income generated from it. The trustee holds the assets on behalf of the beneficiary until they reach a certain age or as specified by the trust.
Assets in a bare trust are held in the name of a trustee. However, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales), or 16 or over (in Scotland). This means the assets set aside by the settlor will always go directly to the intended beneficiary. Bare trusts are often used to pass assets to young people - the trustees look after them until the beneficiary is old enough.
A variety of assets can be placed in a Bare Trust, including:
Anyone can set up a Bare Trust, but it is most commonly used by parents or grandparents who want to pass assets to children or grandchildren. It can also be used in various other scenarios where an individual wishes to give assets to another person while maintaining some level of control over them until certain conditions are met.
Note: This page is for information purposes only and should not be considered as financial advice. Always consult an Independent Financial Adviser for personalised financial advice tailored to your individual circumstances.