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What is a bare trust?

Trusts are legal arrangements where money or assets are held by a person (known as the trustee) for the benefit of another (the beneficiary). Commonly, money (or assets) can be passed as a gift into the trust and held or invested until such time as the trustees distribute money or assets to the beneficiaries. Trusts can allow you (or someone you nominate) to retain control over when and how monies are distributed.

Trusts are useful for saving for children, because they allow you to pass on money before children are old enough to be given the money directly. Trusts are also useful for inheritance tax (IHT) planning in that currently gifts to trust may reduce the value of your estate and thereby reduce the amount of IHT paid upon death.

Bare trusts are the simplest type of trust and are created when you make a gift into a designated investment account with the intention of creating a trust. The child is the beneficiary and there are normally two adults acting as trustees. The child becomes automatically entitled to the investments at 18. However, as a trustee, you may be able to distribute money earlier if you need to, for example to meet school fees.

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