According to Investopedia, a bare trust is a basic trust in which the beneficiary has the absolute right to the capital and assets within the trust, as well as the income generated from these assets. In real estate, a bare trust may be used to hold legal title to real estate.
Why use a bare trust for real estate investing?
The use of a bare trust allows multiple co-owners to hold a beneficial interest in the property with only the bare trustee registered on title. This allows changes in the co-owners without having to change the registered owner or transferring title. One of the main purposes of holding real estate in a bare trust is to avoid the usurious property transfer tax upon a sale of the asset.
What are the benefits of a bare trust?
Bare trusts offer tax advantages to individuals who set up the trust while beneficiaries are taxed at current rates or may be subject to exceptions if they have low earnings.
Does addy use bare trusts?
In some cases, yes. Why? Certain entities are not capable of holding registered title to land. Partnerships are one example. If a partnership chooses to own land, they must appoint a trustee to hold a registered title. As needed, addy sets up partnerships which is why addy is the trustee name on the registered title.
Further, holding a registered title in the name of a trustee can reduce the number of parties that have to sign documents to complete a transaction. Doing so is particularly useful for addy as our investment opportunities are joint ventures with multiple participants (like you!).
What do I need to know about investing in a bare trust?
There are 3 main things to know about bare trusts:
- The trustee has no say on how the capital or income of the trust is distributed.
- The beneficiary can call for the capital, assets and income of the trust whenever they want.
- The trustee must distribute the profits or returns and transfer the assets to the beneficiary or beneficiaries when directed to do so by the beneficiary(ies).