A bare trust (sometimes known as a ‘simple trust’) is basically a window – you simply look through it to see who owns the asset. It isn’t really a trust at all as the beneficiary has an immediate right to the funds within the trust.

The benefit of a bare trust is that the assets go directly to the named beneficiary they intend, because, once the trust has been set up, the beneficiary cannot be changed.

The trust assets are held in the name of a trustee (the person administering the trust), but the trustee has no discretion over any payments.

They are commonly used to transfer assets to minors. Trustees hold the assets on trust until the beneficiary is 18, at which point the beneficiary can demand the trust fund.

In terms of larger sums, it often isn’t a good idea to give a lump sum to a beneficiary – chances are it will dissipate like water through their fingers.

Bare trusts and Tax

Taxation of bare trusts is rather simple.

All the income generated is taxed on the beneficiary, any capital gains tax (a tax on profits on certain items) is charged on the beneficiary and the assets form part of the beneficiaries estate for inheritance tax purposes (this may mean they need a Will).

Creating a bare trust can also be taxable on the person making the gift, if they fail to survive 7 years from the date of the gift.

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