Bare Trusts

Hi there, welcome back!

Last week we launched the Allawdocs blog, which to begin with will focus on the topic of trusts. Trusts structures are used for all kinds of reasons, including (but not limited to) tax and asset protection purposes.

A commonly used type of trust is a bare trust. A bare trust is a trust in which the trustee holds the trust property for the benefit of the beneficiaries. The trustee of a bare trust has no active duties to perform, except to transfer and deal with the trust property as directed by the beneficiaries. As we will see in Allawdocs' upcoming The Might of the Trustee blog series, the trustee should be selected carefully as it will be the legal owner of the trust property.

Once a bare trust is established, the beneficiaries cannot be changed. Further, any income or gains of the trust property will be treated as having accrued to the beneficiaries for tax purposes. You should seek individual tax advice from your accountant or financial planner when considering any trust structure.

When are bare trusts used?

There are a couple of common uses of bare trusts:

(1)  Giving assets to minors

It is common to give assets to minors through a bare trust as the minor is unable to manage the asset himself/herself. Giving minors assets through a bare trust has the benefits of ensuring the asset(s) is effectively managed and creating certainty that the asset(s) will be transferred to a particular beneficiary at a later time.

(2)  Self Managed Super Fund borrowing

Bare trusts allow self managed super funds (SMSF) to borrow money and also comply with:

•          lender requirements; and
•          the provisions of the Superannuation Industry Supervision Act, in particular relating to non-remittance loan clauses.

When assets are owned through a bare trust, a lender can take security over the property which can be relied on in the event of the borrower's default on the loan. Allawdocs can amend the bare trust deed to suit any additional requirements of a lender. Minor amendments are a complimentary service.

In summary

Bare trusts are a commonly used and useful trust structure. In particular in the case of SMSFs, bare trusts allow for the taking of loans to purchase property in a way that satisfies regulatory requirements and the requirements of lenders.

As mentioned, it is important to carefully consider who to appoint as trustee of any trust. Stay tuned for more on this next time as we begin our new blog info-series: The Might of the Trustee!

About us

Allawdocs provides fast, quality online legal documents for accountants, financial planners, lawyers, and business owners around Australia, including company formations, trust deeds, and SMSF documents. With the legal support of GV Lawyers, clients can receive free legal advice relating to their Allawdocs document.

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