Bare Trust Deed

What is a Bare Trust?

Firstly, what is a ‘trust’? Trusts became fashionable when King Henry VIII was on the throne. So much so that he attempted to reduce their tax benefits – without success.

Here is an example of a ‘bare trust’. When your son is born you open a bank account in trust for him. You are the trustee. The trust’s beneficiary is your son. You hold the bank account in trust for your son. Your name appears on the bank account merely as the ‘legal owner’. The ‘true’ or ‘beneficial’ owner is your son. It is your son that pays tax on the bank account interest. When your son is 18 years of age he can remove you as trustee – and instead place you with another trustee or himself as the ‘legal owner’.

Beneficiaries of trusts are protected. For example, if you, as the trustee, go bankrupt or get a divorce then the trust asset, being the bank account, is not lost. The bank account is preserved for your son, who, as beneficiary, is the ‘true’ owner of the asset. The courts and the ATO ‘look through’ the trust to see who the ‘true’ owner of the assets are. In this case the ‘true’ owner is your son – not you.

Most people when they own an asset hold both the legal and beneficial interest in the asset. There is no trust if you hold both the legal and beneficial ownership. In contrast, in a trust the legal and beneficial interests are held by different people. One person is the legal owner – trustee. The other person is the beneficial owner – beneficiary. A trust automatically exists when you separate the ‘legal’ and ‘beneficial’ ownership.

If your son, at 18, removes you at trustee and puts himself in as the legal owner, then the trust is finished – it is extinguished. This is because your son now holds both the ‘legal’ title and ‘beneficial’ interest. The split of the ownership has gone and the trust relationship no longer exists.

The trust asset can be anything, including real estate, shares, artwork, cars, bank accounts and cash.

One great strength of Trusts is that they are unregulated and private.

There are many types of bare trusts you can build at our website, for example:

  1. Declaration of Trust BEFORE You Buy  – this is where you secretly buy your neighbour’s home, without the owner knowing it is you that is buying the property.
  2. Acknowledgement of Trust – this is where you got your trustee to purchase something secretly on your behalf, but you forgot to acknowledge the trust relationship in writing, until now.
  3. Declaration of Trust AFTER you Own It – this is where a person declares that he holds some or all his assets on trust for another person. It overrides a Will.
  4. Bare Trust – this is where you currently own the asset, but will transfer over the legal ownership, only, to a Trustee. This is the document you are about to start building.

Bare Trust Deed

Before the Bare Trust is created the beneficiary is both the legal and equitable owner. Therefore, there is no trust in existence since the ‘legal owner’ and ‘beneficiary owner’ are the same person. In other words, the beneficiary, before this Bare Trust is signed owns both the ‘legal’ and ‘equitable’ interest in the asset.

In the Bare Trust the beneficiary transfers to the trustee legal ownership only. Under the Bare Trust the beneficiary retains the beneficial interest in the asset. The Trustee only takes on the legal ownership. Neither before nor after the Bare Trust Deed does the Trustee have any beneficial interest in the asset. The beneficial owner remains the beneficial owner.

The ATO and stamps office look through the trust and see that the ‘true’ owner, the beneficial owner has not changed. Therefore, there is generally no stamp duty or CGT implications. The beneficial owner (not the legal owner) continues to pay tax on any income generated by the asset. The beneficial owner continues to be liable for the costs of maintaining the asset.

Nothing changes except that the asset is now in the hands of another person – the trustee. For example, if it was land your lawyer would prepare a transfer and transfer the property, pursuant to the Bare Trust, to the trustee, generally, without any CGT or stamp duty.

Why would you do a Bare Trust?

You may feel vulnerable in the public and reporters knowing what land you own. It is no one’s business, other than you own, and the ATO, of course. You transfer your real estate to a bare trustee for no stamp duty or CGT. When someone does a search at the local titles office your name does not appear anywhere.

Please telephone us if you need more legal advice in answering the questions. We are a law firm.

Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
39 Stirling Highway, Nedlands, WA (Post Office Box 5169, Dalkeith, WA 6009)
Mobile: 04777-96959
Direct: 08 6389-0400
Reception: 08 6389-0100
Email: [email protected]
Skype: brettkennethdavies

22/02/2016

Bare Trust Deed

What is a Bare Trust? Firstly, what is a ‘trust’? Trusts became fashionable when King Henry VIII was on the throne. So much so that he attempted to reduce their tax benefits – without success. Here is an example of a ‘bare trust’. When your son is born you open […]