Bare Trust

AAA

DEFINITION of 'Bare Trust'

A basic trust in which the beneficiary has the absolute right to the capital and assets within the trust, as well as the income generated from these assets. Bare trusts are widely used by parents and grandparents to transfer assets to their children or grandchildren.Trust assets are held in the name of a trustee, who has the responsibility of managing the trust assets in a prudent manner so as to generate maximum benefit for the beneficiaries. The trustee has no control over these assets and has no say or discretion in directing the trust's income or capital. Also known as a simple trust.


INVESTOPEDIA EXPLAINS 'Bare Trust'

Income generated from trust assets in the form of interest, dividends and rent is taxed in the hands of the beneficiary, making it a tax-efficient way of transferring assets to one's descendants. There is no tax implication for the individual who sets up a bare trust, since he or she gives up legal title to the assets when they are transferred to the trust.



One negative feature of a bare trust is that the beneficiaries cannot be changed once it has been set up. Another drawback is that there may be potential capital gains and inheritance tax implications in certain jurisdictions.

RELATED TERMS
  1. Beneficial Interest

    The right to receive benefits on assets held by another party. ...
  2. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  3. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  4. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  5. Trustee

    A person or firm that holds or administers property or assets ...
  6. Inheritance Tax

    In some states in the U.S. (and in the United Kingdom), a tax ...
Related Articles
  1. Options & Futures

    Getting Started On Your Estate Plan

  2. Options & Futures

    Three Documents You Shouldn't Do Without ...

  3. Options & Futures

    An Estate Planning Must: Update Your ...

  4. Options & Futures

    Your Will: Why You Need A Power Of Attorney ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center