Setting up and running a trust is not an easy task. You need to consider several key points to minimize taxes, spare your children the hassles of going through a lengthy probate process, and protect your assets.
We at Pindoria Solicitors have been advising and managing our clients’ assets for more than a decade now. We have the experience and the knowledge in setting up all types of trust arrangements for our clients.
What is a Bare Trust?
Also known as Simple Trust, a Bare Trust is a trust in which each beneficiary has the absolute right to the capital and the income generated from the money. The assets are held in another person’s name on behalf of the beneficiaries, and are legally passed on to them once they reach the appropriate age. The beneficiaries also have the right to take possession of the property.
When you are setting up a trust for grandchildren, you can name your grandchildren’s parents as trustees to hold on to the assets on behalf of the beneficiaries until they reach the right age.
In England and Wales, the assets will be held in a Bare trust until the beneficiaries reach 18 years of age, while in Scotland, the child can access the Trust after they turn 16.
A trust makes sure your assets are distributed according to your wishes. Contact our team for a thorough discussion today to access all the necessary legal information at your disposal that can give you the clarity you deserve.
What is a bare trust?
Bare trust meaning is quite simple – it is a trust in which the intended beneficiary has complete rights to the assets and the income generated by those assets. Parents or grandparents generally set up a bare trust for minors to benefit the maximum from those assets as soon as they turn an appropriate age.
In a bare trust agreement, the assets are held in the name of a trustee, who will look after the assets until the intended beneficiary is old enough to take possession of those assets. If you create bare trusts for grandchildren, you will be required to pay taxes on the income generated by the trust assets until the beneficiary grandchild turns 18 years.
How do bare trusts work?
In a bare trust agreement, the intended beneficiary – the person who benefits from the assets – has absolute and complete right over the assets and the income derived from those assets. Once the beneficiaries are named and the trust has been set up, you cannot change the beneficiaries.
The bare trustee holds the assets until the beneficiary turns 18, but the trustee does not control the income or assets whatsoever.
The beneficiary is liable to pay bare trust tax or income tax on the amount received from the trust. Since the beneficiary is regarded as the owner of the trust property, they are responsible for paying the income tax.
How to set up a bare trust?
Bare trusts are used mainly by parents or grandparents wanting to transfer assets or property to their children or grandchildren. The beneficiaries mentioned in the agreement have absolute right over the bare trust property and the income generated from the assets.
So, how do you set up a bare trust?
A bare trust needs a declaration of trust or a deed of settlement. When you transfer your assets to a bare trust, the trustee and your intended beneficiary own the said assets. However, the trustee doesn’t have any control over the assets or the income gained, and they can only act as per the beneficiary’s instructions.
When you set up a bare trust, you should also think of bare trust taxation. In this case, the income tax on the assets held in the trust should be paid by the beneficiaries.