Bare Trust

The assets in the trust (the ‘trust fund’) belong to the beneficiary but are managed by the trustees of the fund. The income and any capital gain are treated as the beneficiary’s for tax purposes. The value of the trust fund and any income is also treated as the beneficiary’s in any assessment for eligibility for means-tested benefits. Should the beneficiary die the trust fund will pass in accordance with their will (or intestacy rules if there is no will).

This type of trust is typically used when a proposed beneficiary is a child or incapable of dealing with money, through a disability or illness. This avoids the tax and other complications of more formal trusts, but as the trust fund belongs to the beneficiary this form of trust offers less protection and control. The trust fund is not protected from creditors, the beneficiary can insist that the trust fund be transferred to them (if the beneficiary is 18 and mentally capable), and funds cannot be used for anyone but the beneficiary. 

This type of trust is not suitable if you wish to retain control and flexibility, or if the beneficiary may, but for the trust fund, be eligible for means tested benefits. 

This type of trust is also not generally advisable for a person who is incapable of managing their affairs but for whom no attorney, receiver or deputy has been appointed to manage their finances.

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