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. Trust

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

    A person or firm that holds or administers property or assets ...
  5. Beneficiary

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

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  2. Options & Futures

    Three Documents You Shouldn't Do Without

    Estate planning is not just about the division of assets after you die. Read on to save your loved ones extra grief.
  3. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  4. Personal Finance

    Get Ready For The Estate Tax Phase-Out

    Changes to federal legislation will affect how your assets are treated once you're gone - be prepared.
  5. Options & Futures

    Your Will: Why You Need A Power Of Attorney And Beneficiaries

    What would happen if you were suddenly unable to manage your financial affairs? Preparation is the best protection.
  6. Retirement

    Skipping-Out on Probate Costs

    Don't let bad estate planning lead to unnecessary costs and stress for your inheritors.
  7. Professionals

    Tips for Spreading the Wealth to Relatives

    There are many ways that your clients can move money or other assets to relatives in order to reduce their tax bills. Here's a primer on best practices.
  8. Professionals

    Tips for Handling Client Inheritance

    When clients leave or receive an inheritance, be prepared to deal with much more than mere paperwork or financial transactions.
  9. Professionals

    Advice on Dealing with Unequal Inheritances

    When it comes to inheritances, the concept of equal versus equitable can be hard to navigate, even when all parties are reasonable.
  10. Professionals

    Top Tips for Family Wealth Transfers

    Essential tips for tackling family wealth transfers.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center