Mark CorkeryMark Corkery, Director at Fairstone in Tralee, explains the significant advantages of bare trusts…
In Ireland, more families are turning to bare trusts as a strategic way to secure their children’s financial futures.
This approach not only facilitates wealth transfer but also offers significant tax advantages, making it an attractive option for those planning for education expenses, future property purchases, or general wealth accumulation.
Understanding how bare trusts operate is crucial for making informed financial decisions.
A bare trust, also known as a simple or naked trust, is a legal arrangement where a trustee manages assets on behalf of a beneficiary.
Unlike more complex trust structures, the trustee has no discretionary powers and must always act in the beneficiary’s best interest.
The beneficiary, meanwhile, has absolute ownership rights over both the capital and income.
Once they reach 18, they gain full control of the assets, allowing them to decide how the funds are used.
Setting up a bare trust involves several key steps. First, it is essential to choose trustworthy individuals as trustees, often parents or grandparents, who understand their legal responsibilities.
Appointing multiple trustees adds security. The next step is to define the trust’s structure, including the initial assets and investment strategy.
Many families combine the trust with life insurance savings plans to maximise long-term growth.
One of the main advantages of bare trusts in Ireland is their tax efficiency. The Small Gift Exemption allows parents to contribute up to €3,000 per year, per child, without affecting future inheritance allowances.
This exemption also applies to contributions from other relatives or friends, enabling significant wealth to be accumulated over time.
Capital Acquisitions Tax (CAT) is another important consideration.
Tax thresholds depend on the relationship between the donor and the beneficiary, with €400,000 for parents to children, €40,000 for close relatives, and €20,000 for others.
Any gifts exceeding these limits are taxed at 33% on the excess. With strategic planning, families can minimise the impact of CAT and make the most of available exemptions.
Bare trusts are versatile and can be used for a variety of purposes, from funding education costs to accumulating a property deposit.
They are also valuable for succession planning, helping families transfer wealth efficiently while reducing inheritance tax burdens.
However, once assets are placed in a bare trust, they cannot be reclaimed, and beneficiaries gain full control at 18. Therefore, careful consideration and long-term planning are crucial.
Bare trusts offer a powerful way to secure a family’s financial future while maximising tax efficiency.
However, their irrevocable nature and the complexities of tax planning require a strategic approach.
Families considering this option should seek professional financial advice to ensure their trusts are set up correctly and in line with long-term financial goals.
• Fairstone Tralee is located at Beechgrove House on Strand Street. Please contact 066-7185723, email tralee@fairstone.ie or visit https://www.fairstone.ie/location/fairstone-tralee-office/
