A bare trust is a straightforward process of making gifts to children in a tax-efficient way.
While bare trusts are considered the simplest of all trusts, it’s important to understand what’s involved. Keep reading to discover:
- What a bare trust is
- How a bare trust works
- What a bare trust is used for
- What’s involved when setting up a bare trust
What is a bare trust?
A bare trust is a simple legal arrangement that allocates a fixed share of money or other assets to one or more people, usually children. There are many benefits of a bare trust, with no limit to the value you can hold in one.
When setting up a bare trust, you make the key decisions. You’ll choose the beneficiary, appoint trustees (including yourself) and decide when benefits are distributed.
Opening a bare trust for minors
When you set up a bare trust for minors, they automatically get full access to the trust when they turn 18.
If you’re not comfortable with this idea, bare trusts probably aren’t the right option for you.
How does a bare trust work?
Trustees are appointed to look after a bare trust. They make investment decisions and are legally responsible for ensuring the trust operates as it should. Every decision is made in the beneficiary’s interests.
Anyone can contribute, meaning it's simple to pay into bare trusts for grandchildren. And when you make the most of the bare trust taxation rules, contributions can grow tax-free.
One of the main benefits of a bare trust is it allows you to use a child’s capital gains tax exemptions and, if settled by someone other than a parent, their income tax allowance.
This is why most bare trusts grow tax-free, are unlimited in size and provide potential access for the child’s benefit before 18.
What is a bare trust used for?
A bare trust is a popular choice for setting money aside for a child. Unlike Junior ISAs, there’s no limit to the value you can hold in one. And the money can be used for a child’s benefit before they turn 18 (and after).
The straightforward bare trust structure makes it easy for generous grandparents (and anyone else) to contribute to a child’s private education or university fees, for example.
Once you’ve set up a bare trust, you’ll have control over the assets held inside. We can help you protect this wealth on the child’s behalf.
Why set up a bare trust with Bestinvest?
Whether setting up a bare trust for grandchildren or as a parent, an immediate advantage of choosing Bestinvest is that we do everything ourselves, without involving third parties. Most other providers don’t offer this service.
At Bestinvest, we’ve been championing investors who manage their own money for over 35 years. Our low-cost, award-winning service includes excellent free resources:
- Quality investments: access a wide range of quality investments or choose one of our professionally managed Ready-made Portfolios
- Online toolkit: explore our digital resources, such as Investments Explained, our clever investment search tool, free guides, fund factsheets, insights and more
- Free expert support: get free coaching from qualified financial planners
How can I set up bare trusts with Bestinvest?
Setting up a bare trust with Bestinvest is a straightforward process, with our friendly team on hand to guide you. Simply follow these steps to get started:
- File your paperwork. Like all trusts, a bare trust involves some paperwork. But a lot of the form filling is quite intuitive. In our experience, when people set up bare trusts with us, they don’t need much hand holding.
- Check everything over. We’ll check the forms for you and log the information with SEI, the bare trust’s custodian. If everything goes smoothly, a trust can be created in a week.
- Register your bare trust with the tax authorities. Once you’ve opened a bare trust with Bestinvest, you’ll need to register it with HM Revenue and Customs within 90 days or you could receive a fine
To get the ball rolling, all you have to do is give our award-winning customer service team a call on 020 7189 2400.
Frequently asked questions about bare trusts
What’s the difference between a bare trust and a discretionary trust?
The main difference between a bare trust vs a discretionary trust is that trustees for the latter have the flexibility to decide who receives benefits and when. Discretionary trusts can also protect the assets if a beneficiary gets divorced or becomes bankrupt, since the money can remain in trust well into a child’s adulthood.
Can you combine a bare trust and a Junior ISA?
Yes. If you’re curious about how you can combine a bare trust with a Stocks & Shares Junior ISA, chat to one of our coaches free of charge – they’re experienced financial planners.
What are the rights of a beneficiary of a bare trust?
The rights of a bare trust beneficiary are considered ‘absolute’. This means they are the only person allowed to benefit from the trust. Yet until they’re 18, the beneficiary can’t access or control the assets; they can only benefit from them.
How many trustees are needed for a bare trust?
You can have one or more trustees for each bare trust. It’s usually sensible to have at least one younger trustee to ensure that there is a living trustee until the child turns 18.
