Bare Trusts—Outside the Tax Door?
DOI:
https://doi.org/10.14296/ac.v6i3.5781Abstract
For tax purposes, bare trusts are effectively ignored—they are transparent, the beneficiary is treated as the real owner of the trust asset with any income arising therefrom taxed upon them. However, it is still a trust; whilst discretionary and interest in possession trusts (which I shall call “ordinary express trusts”) are subject to special rules with trustees subject to tax, these rules do not apply to bare trusts when, in many cases, the trustees may have similar custodial duties. Also, bare trusts are subject to anti-money laundering regulations and, for tax purposes, adopt other guises such as partnerships and implied trusts. There is thus some disparity between bare trusts and ordinary express trusts, but this disparity may be what makes the bare trust unique. An option to break the transparency and offer settlors a halfway house between transparent tax treatment and greater opaqueness of ordinary express trusts might be a useful feature.
Keywords: bare trust; beneficial ownership; transparent; sham; opaque; express trust; vulnerable persons.
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