Bare trust (simple trust, naked trust) is a type of trust in which the beneficiary has all the rights (capital, assets, income). Trustee has the responsibility for managing assets prudently and generate benefit, but has no say about distribution of capital and incomes. Bare trust can be used to transfer assets from parents to children. They will be able to decide what to do with the capital when they are mature. The beneficiaries of the bare trust cannot be changed.
Paid interest, dividend or rent is taxed to the beneficiary. The tax thus can be lower, as beneficiary usually is preferred as low-earning person. Unfortunately inheritance tax can apply if the settler dies. In several countries a time limit is set for this. In case of US it's 7 years. If the settler dies after 7 years the tax doesn't apply.
- Scholes, L., & Wilson, N. (2014). The importance of family firm trusts in family firm governance. Entrepreneurship Theory and Practice, 38(6), 1285-1293.
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