What is Bare Trust?
227 Views · Updated December 5, 2024
A bare trust is a basic trust in which the beneficiary has the absolute right to the capital and assets within the trust, as well as the income generated from these assets.Trust assets are held in the name of a trustee, who has the responsibility of managing the trust assets prudently so as to generate maximum benefit for the beneficiaries or as lawfully directed by beneficiaries or the trust's creator. However, the trustee has no say in how or when the trust's capital or income is distributed.
Definition
A custodial fund is a basic trust where the beneficiary has absolute rights to the capital and assets within the trust, as well as the income generated from these assets. The trust assets are held in the name of the trustee, who is responsible for prudently managing the trust assets to maximize benefits for the beneficiary or distribute the trust's capital or income according to the lawful instructions of the beneficiary or the trust creator. However, the trustee has no say in how and when the trust's capital or income is distributed.
Origin
The concept of custodial funds originated in medieval England, where landowners began transferring land to trustees to protect their property from taxes and other legal restrictions. Over time, this form of trust evolved into the modern custodial fund, widely used in asset management and estate planning.
Categories and Features
Custodial funds can be categorized into various types, including fixed trusts, revocable trusts, and irrevocable trusts. Fixed trusts specify beneficiaries and distribution methods at the time of establishment, while revocable trusts allow the creator to modify or revoke the trust during their lifetime. Irrevocable trusts, once established, typically cannot be changed. The main features of custodial funds are the trustee's responsibility for asset management and the beneficiary's absolute rights to the income.
Case Studies
A typical case is the estate management of Apple Inc. founder Steve Jobs, who used an irrevocable trust to manage his assets, ensuring long-term benefits for his family. Another example is the Walton family of Walmart, who utilize trust funds to manage and distribute family wealth, ensuring intergenerational wealth transfer.
Common Issues
Common issues investors face when using custodial funds include misunderstandings of trust terms and the trustee's role. Many mistakenly believe that trustees can freely dispose of trust assets, whereas trustees must act strictly according to the trust terms.
Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation and endorsement of any specific investment or investment strategy.