In
trust law
A trust is a legal relationship in which the owner of property, or any transferable right, gives it to another to manage and use solely for the benefit of a designated person. In the English common law, the party who entrusts the property is k ...
, a bare trust is a trust in which the
beneficiary
A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the person who receives the payment of the amount of ...
has a right to both
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...
and
capital
Capital and its variations may refer to:
Common uses
* Capital city, a municipality of primary status
** Capital region, a metropolitan region containing the capital
** List of national capitals
* Capital letter, an upper-case letter
Econom ...
and may call for both to be
remitted into their own name.
In England and Wales
Asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...
s in a bare trust are held in the name of a
trustee
Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, refers to anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility for the ...
, but the beneficiary has the right to all of the capital and income of the trust at any time if they are 18 or over (in
England and Wales
England and Wales () is one of the Law of the United Kingdom#Legal jurisdictions, three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. Th ...
), or 16 or over (in
Scotland
Scotland is a Countries of the United Kingdom, country that is part of the United Kingdom. It contains nearly one-third of the United Kingdom's land area, consisting of the northern part of the island of Great Britain and more than 790 adjac ...
). Bare trusts are often used to pass assets to young people - the trustees look after them until the beneficiary is old enough.
In Australia
Recent amendments to the ''Superannuation Industry (Supervision) Act 1993'' allow superannuation funds to invest in any kind of asset and to borrow, charging those assets so long as there is no recourse for the borrowing against the superannuation fund. New section 67A & 67B provides that a fund can borrow money if:
#the borrowed monies are used to acquire an asset which the fund is not otherwise prohibited from acquiring
#the asset acquired (or a replacement asset) is held on trust (the holding trust) so the fund receives a beneficial interest in the asset
#the SMSF has the right to acquire legal ownership of the asset (or, if applicable, the replacement asset) by making one or more payments after acquiring the beneficial interest
#any recourse the lender has under the arrangement against the SMSF trustee is limited to rights relating to the asset acquired (or, if applicable, the replacement asset). For example, the lender can have the right to recover outstanding amounts where there is a default on the borrowing by repossessing or disposing of the asset being acquired under the arrangement, but cannot have the right to recover such amounts through recourse to the fund's other assets.
The Bare Trust Deed is a key document. Care is required to ensure there are no adverse GST, taxation or stamp duty consequences. The legal and beneficial interests in the property must be separated, so that an entity separate from the Superannuation Fund Trustee holds the legal title, while the Superannuation Fund Trustee holds the beneficial interest.
A case that deals with the limited powers of a bare trustee to deal with trust assets is ''Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd'',
which considered the law relating to the duties, powers and rights of a bare trustee in a winding up.
This case is an important reminder to practitioners of some of the difficulties that can arise where an insolvent company owns property as a corporate trustee. Care should be taken to carefully review the trust deed on appointment to ensure the trustee retains its powers to sell trust assets.
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See also
* Nominee trust
* Nominee account
References
{{reflist
Equity (law)
Wills and trusts