What is a Bare Trust in New Zealand?

Question from 123, What is a Bare Trust in New Zealand?

Answer from AI:

A bare trust, also known as a simple trust, is a type of trust arrangement where the trustee holds the trust property for the absolute and immediate benefit of the beneficiary. In New Zealand, the concept of a bare trust is governed by the Trusts Act 2019.

Characteristics of a Bare Trust

In a bare trust:

• The trustee has no active duties beyond transferring the property to the beneficiary when asked.
• The beneficiary has an immediate and absolute right to both the capital and income of the trust.
• The beneficiary has the power to terminate the trust and take direct control of the trust property.

Legal Framework

The Trusts Act 2019 is the primary legislation governing trusts in New Zealand. It sets out the duties of trustees, the rights of beneficiaries, and the rules for managing and distributing trust property. However, it does not specifically define or regulate bare trusts. The principles of bare trusts are derived from common law, i.e., case law decisions made by judges.

When to Use a Bare Trust

Bare trusts are often used in straightforward situations where there is no need for the trustee to do anything other than hold the property until the beneficiary decides to take it. They can be useful in estate planning, for example, where a person wants to leave property to a minor but does not want the minor to have control of the property until they reach a certain age.

Legal Advice

While the concept of a bare trust is relatively simple, the legal implications can be complex. If you are considering setting up a bare trust, it is recommended that you consult with a legal professional. They can provide personalized advice based on your specific circumstances and help you understand the potential tax and legal implications.

For more information on trusts in New Zealand, you can refer to the Trusts Act 2019 and the New Zealand Ministry of Justice website.

Please note that this information is intended to provide a general understanding of bare trusts in New Zealand. It should not be taken as legal advice.