Definition
A naked trust is a trust in which the beneficiary has a right to both income and capital and has the ability to request that both be transferred into his own name, as opposed to a remainder trust. Assets in a bare trust are kept in the name of the trustee, but the beneficiary has the right to receive the whole of the trust’s capital and income at any time if they are 18 years old or older, or 16 years old or older. Bare trusts are often used to transfer assets to minors; the trustees are responsible for the assets until the recipient reaches the appropriate age.
What is ‘Naked Trust’
Uncomplicated sort of trust, in which a trustor transfers assets (such as money or property) with the intent of transferring such assets to beneficiaries. A trust is created when an asset is transferred from its original owner (the trustor) to a third party who has complete authority over it. The trustee has only a minimal amount of power over the assets held in the trust. Once the trust’s beneficiary reaches the age of majority, he or she becomes the sole owner of the assets.
Explaining ‘Naked Trust’
This estate-planning technique is often utilized by parents or grandparents to transfer assets to their children or grandchildren after their deaths. Before creating a naked trust for children, it is important to evaluate the ramifications of placing money into the trust for college financial aid purposes.
Naked Trust FAQ
What is the point of a bare trust?
Essentially, this implies that the assets put aside by the settlor will always be distributed to the specified recipient. Bare trusts are often used to transfer assets to minors; the trustees are responsible for the assets until the recipient reaches the appropriate age.
Who can set up a bare trust?
Under a bare trust, the assets are recorded via a bank account established by the parents in their own names and designated with the child's initials as the beneficiary of the trust. This creates a bare trust, with the parent acting as trustee for the benefit of the kid, and the assets being held by the parent.
Are bare trusts worth it?
A naked trust is one of the most basic types of trust, and the simplicity of this kind of trust has certain benefits. Consider the following example: compared to a discretionary trust, the administration of a bare trust is relatively uncomplicated, which helps to minimize the overall operating expenses.
Who pays tax on bare trust?
Each of the two tax regimes is designed to target and tax the beneficiary of a trust at the beneficiary's marginal tax rate.
Further Reading
- The economics of naked short selling – heinonline.org [PDF]
- The business ethics of short selling and naked short selling – link.springer.com [PDF]
- Transition to Crisis in Hungary: Whistle‐Blowing on the Naked Emperor – onlinelibrary.wiley.com [PDF]
