What is a Bare Trust?
The beneficiary of a Bare Trust has the absolute right to the trust’s assets and income. This type of trust is often used to hold assets for minors or to facilitate a specific purpose, such as holding property for someone else.
Key features
- The trustee holds legal title to the assets but must follow the beneficiary’s instructions,
- The beneficiary has a fixed and absolute entitlement to the trust’s income and assets,
- The trustee’s role is administrative and involves carrying out the beneficiary’s wishes,
- Commonly used for holding assets on behalf of minors, managing specific assets, or facilitating property transactions.
Steps in setting up a Bare Trust
1. Select a trustee
The trustee is the person/legal entity responsible for administering the trust in accordance with the terms of the trust deed. The trustee may be one or more individuals or a private (i.e. proprietary limited) company specifically setup to act as trustee.
It is generally recommended that a company act as trustee of a bare trust in order to minimise the risk of personal liability (which is generally greater for individual trustees than for directors of a corporate trustee). It also avoids unnecessary administration, as where the trustee is an individual (versus a company) there would need to be a change made in respect of the registered owner of each trust asset where there are changes in individual trustees.
2. Prepare a Trust Deed
eCompanies can prepare a customised bare trust deed for $150. Our questionnaire will guide you through all the required information, for more information of what is required please see our explanation of bare trust roles.
Email delivery of your deed is in pdf format, however you may also download the deed in docx, doc or rtf format from our client area at any time if you need the ability to edit the deed before it is signed.
Trust Name
You can name your trust whatever you like, it doesn't matter that there is another trust with the same name. However it is standard to have a fairly descriptive name, eg 'The Jones Family Trust' or 'The Jones Unit Trust'
Settled Sum
A trust is usually established by a small gift (the settled sum) from the settlor to the trust. In our deed the amount is $10.
Trustee
The trustee handles the day to day administration of the trust. The trustee hold assets on behalf of the trust and make decisions about the distribution of income and assets to the beneficiaries.
Appointor
The appointor has the power to add or remove trustees from the trust. They ultimately have control over the trust.
Primary Beneficiary
The beneficiaries are the ones who receive benefit from the trust, ie they can receive income and assets. When a beneficiary is named in our trust deed, their spouse and children can also be allocated income and assets at the discretion of the trustee(s).
You can see the Bare Trust details in the order summary screen on the final page.
Use this to help confirm all the details entered are correct and that there are no typos listed.
3. Trustee and beneficiary sign the Trust Deed
Both the trustee and beneficiary must agree to the terms of the deed.
4. Register the bare trust with the relevant authorities.
Depending on the type and value of the asset held by the bare trust, you may need to pay stamp duty, capital gains tax, or land tax.
You may also need to obtain an Australian Business Number (ABN) or Tax File Number (TFN) for the bare trust if it receives income or makes capital gains.
5. The Trust is operational
The trust is now operational. Your need to manage the bare trust according to its terms and conditions.