Glossary
Bare trust
Also called: holding trust, custodian trust
A bare trust is a simple trust in which the trustee holds an asset for a beneficiary but has no active duties beyond holding title and following the beneficiary's directions. It is the holding structure used in SMSF borrowing.
An example
In an SMSF property purchase, a company acting as bare trustee is registered on the title, while the SMSF is the beneficial owner and makes the loan repayments.
Why it matters
The bare trust must be set up correctly and before the purchase. Errors in the structure can be expensive to fix, so specialist legal advice is commonly sought.
Points to check
In an SMSF borrowing arrangement, the bare trustee is often a separate company created only to hold the property. Ask your accountant or lawyer who should act as bare trustee, how the trust deed is prepared and when it must be signed relative to the purchase contract. Getting the order of documents wrong can create duty or compliance problems. Check that the contract of sale names the correct party, and that the lender's documents reflect the same structure.