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bare trust, Costs, trust, Trusts

Barely there

Bare trusts are not uncommon and can arise intentionally or otherwise, as well as by an express declaration of trust, whether written or oral.   However, the nomenclature can extend to a range of circumstances where it is necessary to consider the nature of the trust and, if a bare trust, the bare trustee’s duties.

In the most conventional sense a bare trustee is “… a person who has himself no present beneficial interest in it and no duties to perform in respect of it except to convey and transfer to the persons entitled to hold it, and he is bound to convey or transfer the property accordingly when required to do so.”  See Halsbury’s Law of England (5th ed, vol 98 at 195.

The law relating to bare trusts can also provide guidance  in complex situations regarding the true owner of particular property.  See, for example, Fleshing out bare trusts.

Where a trustee has more duties than as set out above, such that the trustee has active duties to perform, the nomenclature of bare trust may be inapt (see Burns v Steel).  Also see Herdergen v FCT where Gummow J distinguished between passive and active trusts.

To look at the matter from an alternative perspective where it is intended that the trust is a bare trust, although a bare trustee has a duty to protect trust property, a bare trustee must refrain from active management that does not fall within the duty to maintain the trust property: See Garrow and Kelly Law of Trusts and Trustees  at 2.12 and Bruton Holdings Pty Ltd (in liquidation) v FCT (2011) 193 FCR 442 (FCAFC).

The trustee of a bare trust is treated as a nominee and looked through for tax purposes.  See Income Tax Act 2007, s YB 21.  However, this does require the correct identification of a bare trust.

Recently Inland Revenue has set out its views regarding bare trusts in the context of assent from executor to trustee. See  IS 19/04 Income Tax – Distributions from Foreign Trusts at [173] and [185] onwards.  Also see Inland Revenue’s views regarding bare trusts in the context of goods and services tax in QB 16/03 Goods and Services Tax – GST Treatment of Bare Trusts 

However, what of the bare trust in the context where an inter vivos  trust has vested and assets remain held by the trustee or trustees for the final beneficiaries?  Are the trustees still holding under the terms of the inter vivos trust or on a new bare trust pending final distribution?

Given that a bare trustee by definition has the duty to transfer the trust property to the beneficiary (or as directed by the beneficiary), at this point a bare trust must surely arise.  While the trustee will still have a legal duty to take reasonable care of the trust property that duty is now owed to the specific recipient.  A bare trustee’s duties and powers are now those that arise outside the deed following the termination of the Trust in question. This is considered in  CGU Insurance Ltd v One Tel Ltd (in liquidation) in the context of whether a bare trustee can continue legal proceedings following the termination of the trust.  The position is set out at as follows at [37] of that:

“It does not follow from CGU’s contention that the Trustee had no entitlement to continue the proceedings which could be derived from the Deed once it had terminated that the Trustee did not have an entitlement to continue the proceedings after the Deed terminated which derives from a source other than the Deed. The latter entitlement derives from the duty and power of trusteeship. The Deed created a trusteeship with express duties. The termination of the Deed caused the Trustee to have duties and powers outside the Deed. Here the duty of the Trustee to vindicate the rights connected with the trust property related to a chose in action being enforced in the Trustee proceedings. The hoped-for fruits of those proceedings lay in an order for damages. Discontinuance by the Trustee with a view to letting some other person enforce the chose in action by starting a new action may have run the risk that the new action might be statute-barred, and would certainly have involved a waste of costs. In these circumstances the only way of protecting the chose in action, vindicating the rights attached to it and getting in its fruits was for the Trustee to continue the proceedings.”

As to practical matters a bare trustee’s properly incurred expenses can be met as currently provided for in the Trustee Act 1956, s 38.  However, if any fees are to be charged the proper recovery of these will require further consideration if the only right to remuneration was provided for in the terms of a trust that has since terminated or vested.  As a matter of prudence the drafting of inter vivos trusts might properly and specifically consider such matters.

References:

  • Herdergen v FCT [2006] 1 NZLR 559
  • Garrow and Kelly Law of Trusts and Trustees  at 2.12
  • Bruton Holdings Pty Ltd (in liquidation) v FCT (2011) 193 FCR 442
  • Burns v Steeel [2006] 1 NZLR
  • Trustee Act 1956, s 38
  • QB 16/03 Goods and Services Tax – GST Treatment of Bare Trusts
  • Halsbury’s Law of England (5th ed, vol 98
  • CGU Insurance Ltd v One Tel Ltd (in liquidation) [2010] HCA 26
  • Income Tax Act 2007, s YB 21

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