Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 255

The benefits of investing via a bare trust

Bare trusts can be used to let a small number of sophisticated or wholesale investors access their investment through one legal entity. This is particularly useful when an investment can only be made by one entity, or a ‘single investor’.

How do bare trusts work?

In a bare trust, the assets are held in the name of a trustee who holds them legally and on trust for each beneficiary. Sometimes, the trustee is an investment manager who has helped source and access the investment. In other situations, the investors have made their own assessment of whether to invest without any advice from an investment manager.

One of the benefits of a bare trust is that the trustee has no say in how the capital or income of the trust is distributed. The beneficiary can call for the capital, assets, and income of the trust whenever they want. The trustee is just responsible for distributing the profits or returns and transferring the asset to the beneficiary if they ask.

To set up a bare trust, each investor signs a separate trust deed with the trustee. The investor’s funds are not pooled to purchase the investment, as this would create a managed investment scheme.

As this is truly a single investor model, it can only be used where each asset can be separately identified as being held on trust for each beneficiary. That’s why it works well for investments like shares or notes.

Once set up, you can use the bare trust for other investment opportunities in the future. It’s also simpler and less expensive to operate than a unit trust.

The costs associated with a bare trust

Trustees or investment managers often charge a fee for their services, but friends or family may offer to be a trustee for free. Any fee should be deducted from the returns or dividends that the beneficiary is paid.

Bare trusts may also incur stamp duty. This is a one-off amount that is paid when the document is executed. The amount of stamp duty paid depends on the state where the trust is set up.

It’s not possible to ‘jurisdiction-shop’ for the best stamp duty rate though. The courts have held that trusts should be set up in the state where the trust has the most real and substantial connection. For example, if the trustee, beneficiaries, and the investment asset are all located in New South Wales, the trust deed should be stamped in New South Wales.

The beneficiaries should also seek advice about their capital gains tax liability and any other possible issues that may affect them before they use a bare trust.

Do bare trusts need to comply with other regulatory requirements?

The trustee and investment manager may need to hold an Australian financial services licence (AFSL) if they are advising on the investment. They may also need to be licensed if the asset is a financial product.

If the trustee or investment manager does not hold an AFSL to provide custodial services, the bare trust cannot have more than 20 investors.

 

Lydia Carstensen is a Paralegal and Writer at the law firm, The Fold Legal. This article is a brief introduction to bare trusts and any investor considering their use should consult a specialist. The article does not consider the needs of any individual.


 

Leave a Comment:

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.