A bare trust, also known as a simple trust, is a straightforward form of trust where the trustee holds the assets on behalf of the beneficiary until the beneficiary is entitled to receive them. This type of trust is commonly used in estate planning and administration due to its simplicity and the direct control it offers to the beneficiary.

Key Features of a Bare Trust

1. Simplicity: A bare trust is the most basic form of trust. The trustee has no active duties other than to hold the assets and transfer them to the beneficiary when required. This simplicity makes it an attractive option for straightforward estate planning needs.

2. Beneficiary Control: The beneficiary of a bare trust has the absolute right to both the income and the capital of the trust. This means that once the beneficiary reaches the age of majority (usually 18 years old in Australia), they can demand the transfer of the trust assets into their own name.

3. Tax Implications: In a bare trust, the beneficiary is considered the owner of the trust assets for tax purposes. This means that any income generated by the trust assets is taxed in the hands of the beneficiary, not the trustee. This can be advantageous in certain situations, such as when the beneficiary has a lower tax rate than the trustee.

4. Legal Structure: The legal structure of a bare trust is straightforward. The trustee holds the legal title to the trust assets, while the beneficiary holds the beneficial interest. This clear division of roles helps in reducing legal complexities and administrative burdens.

5. Flexibility: While the bare trust is simple, it offers flexibility in terms of asset management. The trustee can manage the assets in a way that best serves the interests of the beneficiary, provided they adhere to the terms of the trust.

Uses of Bare Trusts

Bare trusts are often used in situations where the settlor (the person creating the trust) wants to transfer assets to a minor or someone who is not yet ready to manage the assets themselves. They are also used in tax planning strategies, particularly when there is a need to separate legal ownership from beneficial ownership for tax efficiency.

Considerations

While bare trusts offer simplicity and direct control to the beneficiary, they may not be suitable for all situations. For instance, if there is a need for ongoing management of the trust assets or if the settlor wishes to impose conditions on the use of the assets, a more complex trust structure, such as a discretionary trust, might be more appropriate.

In conclusion, a bare trust is a useful tool in estate planning, providing a straightforward way to manage and transfer assets to beneficiaries. Its simplicity and the direct control it offers to beneficiaries make it an attractive option for many individuals. However, it is essential to consider the specific needs and circumstances of the beneficiaries and the estate when deciding on the appropriate trust structure.