Estate Planning: Bare Trusts

August 19, 2024 | Danny McMullen and Ayath Azhar

What is a Bare Trust?

A bare trust is a distinct type of trust in which legal and beneficial ownership of assets are separated. In this arrangement, the legal owner, referred to as the trustee, has limited rights and responsibilities concerning the management of trust assets. The trustee’s primary role in a bare trust is to hold the legal title and, except in the case of minor beneficiaries, must manage the assets in accordance with the instructions of the beneficial owner. In order words, the beneficiary retains full control over the trustee’s actions, and the trustee possess no independent power, discretion, or responsibility over the assets.[1] 

According to the Canada Revenue Agency (“CRA”), a bare trust is defined as a trust in which it is reasonable to consider the trust as acting as an agent for all beneficiaries concerning all dealings with the trust’s property.[2] Additionally, the trust must not fall under the categories described in paragraphs (a) to (e.1) of the definition of “trust” in subsection 108(1) of the Income Tax Act.[3] The CRA identifies the following as hallmark characteristics of a bare trust:

  • the trustee has no significant powers or responsibilities;
  •  the trustee can take no action without instructions from that beneficiary; and
  • the trustee’s only function is to hold legal title to the property.[4]

Recently, the CRA announced that it will not require bare trusts to file a T3 Income Tax and Information Return, including Schedule 15, for the 2023 tax year. [5] The CRA has indicated that it will work “to further clarify its guidance on this filing requirement” in the upcoming months.[6]

How is a Bare Trust Different from a Regular Trust?

In a standard trust, the trustee may possess a broad array of rights and responsibilities to fulfil their fiduciary duty to the beneficiaries while ensuring the trust is administered in accordance with the grantor’s wishes. The precise duties of a trustee are strongly influenced by the nature of the property held in the trust. These duties can include, but are not limited to, making decisions regarding property distribution in accordance with specified terms, as well as managing and investing trust funds.

Examples of Bare Trusts

  • A parent adds their adult child to their bank account to assist with paying bills or for estate administration on the parent’s death.
  • A parent co-signs a mortgage for their adult child.
  • A parent adds their adult child to the title of their home.  
  • A parent establishes an account for their minor child.

If you have any questions regarding bare trusts, please contact our team at Northview Law to schedule a consultation. 

[1] Canada Revenue Agency. “Treatment of Bare Trusts under the Excise Tax Act”, (22 May 2017), online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-015/treatment-bare-trusts-under-excise-tax-act.html>.

[2] Canada Revenue Agency. “Trust types and codes”, (3 May 2024), online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/types-trusts.html>.

[3] Ibid.

[4] Ibid.

[5]Canada Revenue Agency. “New reporting requirements for trusts and bare trusts: T3 returns filed for tax years ending after December 30, 2023”, (19 May 2024), online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/new-trust-reporting-requirements-t3-filed-tax-years-ending-december-2023.html>.

[6] Ibid.