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.

  •   23 May 2018
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

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?

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

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.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

A speech from the Prime Minister on fixing housing

“Fellow Australians, I want to address our most pressing national issue: housing. For too long, governments have tiptoed around problems from escalating prices, but for the sake of our younger generations, that stops today.”        

Taxation

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

Exchange traded products

Multiple ways to win

Both active and passive investing can work, but active investment doesn’t in the way it is practised by many fund managers and passive investing doesn’t work in the way most end investors practise it. Here’s a better way.

Economy

The Future Fund may become a 'bad bank' for problem home loans

The Future Fund says it will not be paying defined benefit pensions until at least 2033 - raising as many questions as answers. This points to an increasingly uncertain future for Australia's sovereign wealth fund.

Investment strategies

Managed accounts and the future of portfolio construction

With $233 billion under management, managed accounts are evolving into diversified, transparent, and liquid investment frameworks. The rise of ETFs and private markets marks a shift in portfolio design and discipline. 

Property

Commercial property prospects are looking up

Commercial property is seeing the same supply issues as the residential market. Given the chronic undersupply and a recent pickup in demand, it bodes well for an upturn in commercial real estate prices.

Infrastructure

Private toll roads need a shake-up

Privatised toll roads in Australia help governments avoid upfront costs but often push financial risks onto taxpayers while creating monopolies and unfair toll burdens for commuters and businesses.

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.