Bare Trust Deed Example: Comprehensive Guide & Template

A Bare Trust Deed, also known as a Naked or Simple Trust, is a legal agreement where a settlor transfers assets to a trustee with the responsibility to manage them for the benefit of a beneficiary. It's a powerful tool in estate planning, allowing for control over your assets even after you're gone. Let's explore how a Bare Trust Deed works, its key components, and provide a real-life example to illustrate its use.

Before delving into the details, it's crucial to understand that a Bare Trust Deed is 'bare' because the trustee has no discretion over how the assets are managed or distributed. They simply hold the assets on trust for the beneficiary. This makes it a simple yet effective solution for passing on wealth efficiently. Now, let's dive into the specifics.

Key Components of a Bare Trust Deed

A Bare Trust Deed consists of several essential elements:

The Settlor

The Settlor is the individual who creates the trust by transferring assets into it. They can be an individual, a company, or even a trustee of another trust.

The Trustee

The Trustee is the person, company, or entity responsible for holding and managing the trust's assets on behalf of the beneficiary. They have a fiduciary duty to act in the best interests of the beneficiary.

The Beneficiary

The Beneficiary is the person (or persons) who benefits from the trust. They have the right to receive the income or capital from the trust, though this is often held on further trust for other beneficiaries.

The Trust Property

The Trust Property refers to the assets transferred into the trust. This could be anything from money and investments to property or businesses.

Bare Trust Deed Example: The Johnson Family

Meet the Johnson family. John and Jane are successful entrepreneurs looking to protect their hard-earned wealth and pass it onto their children, Emma and Alex, while minimizing taxation.

John and Jane set up a Bare Trust Deed, transferring shares in their family company into the trust. Here's how it works:

Settlors: John and Jane

As the original owners of the shares, John and Jane are the settlers. They decide to transfer a significant chunk of their shares into the trust.

Trustee: The Johnson Family Trust Corporation

To keep things simple, John and Jane set up a Corporation Sole, the Johnson Family Trust Corporation, to act as the trustee. This ensures the trust is managed professionally and independently.

Beneficiaries: Emma and Alex

Emma and Alex are the beneficiaries. While they can't directly control or sell the shares, they benefit from the income generated by those shares. In this case, that means regular dividend payments.

The Trust Property: Shares in the Family Company

John and Jane transfer 50,000 shares in their family company into the trust. This makes up about 30% of the company's total share capital.

The trust deeds specify that the dividends generated by these shares must be paid to Emma and Alex. This allows them to receive a substantial income, helping them build their own financial independence. Meanwhile, John and Jane maintain control over the company's operations and can access the shares' value if they need to raise capital.

The Tax Advantages

By transferring the shares into the trust, John and Jane reduce their tax liability. The trust pays tax on the income at the lower trust tax rate, and Emma and Alex may be able to claim their own tax allowances on the income.

Moreover, if John and Jane were to pass away, the shares would not form part of their estate for inheritance tax purposes. This further protects their wealth and ensures it passes down to their children efficiently.

Drafting a Bare Trust Deed

Creating a Bare Trust Deed requires careful consideration and professional advice. The deed should clearly outline the settlor's intentions, specify who the trustee and beneficiary are, and detail the trust property.

It's also essential to consider the tax implications of setting up the trust and to ensure compliance with local laws and regulations. For example, in the UK, Bare Trusts are subject to specific rules regarding the 'settlor-interested' status, which can impact tax treatment.

Final Thoughts: A Bare Trust Deed is a versatile tool in wealth planning, offering tax efficiency, flexibility, and control. Whether you're looking to protect your assets, pass on wealth to future generations, or simply manage your finances more effectively, understanding how a Bare Trust Deed works is a crucial step in the process. Always consult with a legal or financial professional to ensure your specific needs are met.