Definition of a Bare Trust
A Bare Trust is an arrangement wherein one or more persons, the trustee, holds title to property for another person, the beneficiary. A Bare Trust differs from other types of trusts in that the trustee has very limited duties in a Bare Trust. In a regular trust, the trustee has a fiduciary duty to protect and manage the trust property on behalf of the beneficiary. However, in a Bare Trust, the trustee generally has no active duties to manage the trust property other than to hold title and transfer the title of the trust property to the beneficiary when instructed. In a Bare Trust, the trustee simply holds title to the property for the benefit of the beneficiary.
Bare Trusts Transfers Are Not Taxable
A benefit of using a Bare Trust is that the Canada Revenue Agency (CRA) generally does not consider Bare Trust transfers a taxable event. However, to avoid the inadvertent triggering of a taxable event, it is important that a Bare Trust complies with the CRA’s requirements. These requirements include provisions that the trustee has no significant powers or responsibilities and that the trustee can take no action regarding the property held by the trust without instructions from the settlor. In addition, the settlor should be the beneficiary of the trust and he or she should retain the power to have the trust property revert to him or her at any time. It is important to carefully structure a Bare Trust to be compliant wth CRA requirements to avoid tax liability.
Uses of Bare Trusts
By using a bare trust, it is possible to transfer ownership of property by changing the beneficiary of the trust without changing the title registration in the name of the trustee. This can enable the beneficiaries to effectively transfer ownership without incurring multiple land registration fees.
If you’re interested in a Bare Trust or if you have questions, please feel free to contact Safe Harbour Trusts Law to see if a Bare Trust is appropriate for you.
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