What Is a Bare Trust?
A bare trust is the simplest form of trust recognized in Canadian law. One person (the trustee) holds legal title to an asset, while another person (the beneficial owner) has full control, benefit, and responsibility for the asset.
The trustee has no discretion. They must act exactly as instructed by the beneficial owner. For tax purposes, the bare trust is generally ignored, and all income and gains are reported by the beneficial owner.
Why Bare Trusts Are Used
1. Estate & Family Planning
Bare trusts are commonly used to hold assets on behalf of family members while keeping beneficial ownership clear. Examples include:
- Parents holding assets for adult children
- Children holding assets for aging parents
- Organizing specific assets for future division among heirs
2. Administrative Convenience
A bare trust allows someone to manage an asset without transferring beneficial ownership. This is useful when:
- One person handles finances for another
- Legal title needs to be in a different name for practical reasons
- Multiple people share beneficial ownership but want a single name on title
3. Clarity for Executors
A written bare trust declaration helps executors understand who truly owns an asset, reducing confusion and preventing disputes.
4. Tax Transparency
The CRA generally treats bare trusts as “look‑through” arrangements. The trust itself does not pay tax; the beneficial owner reports all income and gains.
How a Bare Trust Works
- The trustee’s name appears on title or account documents.
- The beneficial owner controls all decisions.
- The trustee cannot act independently.
- A simple written declaration is usually sufficient.
Examples of Bare Trust Use
Real Estate
A parent may be on title for mortgage qualification, while the child is the beneficial owner.
Investment Accounts
One person may hold an account in trust for another for convenience or management purposes.
Precious Metals or Personal Property
Assets can be held in trust while beneficial ownership remains with someone else, simplifying future division or executor instructions.
Important Notes
- CRA has introduced new reporting rules for certain bare trusts.
- Whether a trust must file a T3 depends on specific circumstances.
- Proper documentation is essential to avoid disputes.