Some trusts are bare trusts to begin with, and other evolve into one when multiple contingencies have expired or have been completed.
A bare trust is a basic, simple "naked" trust.
Oosterhoff wrote:
"The bare trust: A trust exists whenever title to property is vested in one person to be held for the benefit of another. The trustee is subjected to a variety of duties, some imposed by equity, such as making the property productive and exercising reasonable care over it; other duties are imposed by the creator of the trust, such as applying the income for the maintenance of minors. When the trustee no longer has active duties to perform (that is, duties imposed by the creator of the trust), except to convey the trust property to the beneficiaries upon demand, the trust is said to be a bare, naked, simple or dry trust. At that point the duties imposed upon the trustee by equity are regarded as passive duties."
In Ironside v Smith, Justice Fruman of the Alberta Court of Appeal used these words:
"An individual may hold property on behalf of another as bare trustee without taking on all the onerous trappings of a fiduciary. A bare trustee has no further duty to perform except to convey the property to the beneficiary on demand and, so long as he holds it, to exercise reasonable care over the property, by maintaining or investing it."
In Waters' Law of Trusts in Canada, the authors raise the controversy in law as to whether or not a trust wherein the trustee has a beneficial interest in the property, is a bare trust, concluding that:
"Case authorities are divided upon the point. The bare trust is a situation where (1) the trustee has never had active duties to perform or has ceased to have such active duties and awaits transferences to the beneficiaries, or (2) where the trustee has no personal interest in the trust property. Most ... texts ... are agreed on the former meaning."
In De Mond v R., Justice Lamarre of Canada's Tax Court, after taking eleven months to cogitate upon his reasons and judgment, used these words:
"The distinguishing characteristic of the bare trust is that the trustee has no independent powers, discretions or responsibilities. His only responsibility is to carry out the instructions of his principals --- the beneficiaries. If he does not have to accept instructions, if he has any significant independent powers or responsibilities, he is not a bare trustee."
The judge then stated the then-position of Revenue Canada (now Canada Revenue Agency or CRA) on bare trusts:
"Although a bare trust is not defined in the Income Tax Act, Revenue Canada generally views this to be a trust under common law where the trustee has no significant powers or responsibilities, and can take no action regarding the property held by the trust without instructions from the settlor. Normally the trustee's only function is to hold legal title to the property. Furthermore, the settlor is also the sole beneficiary and can cause the property to revert to him at any time. Thus a bare trust does not include a blind trust or other trusts in which the trustee has established powers and responsibilities."
REFERENCES:
- De Mond v R 29 ETR 2d 226 (1999)
- Ironside v Smith 1998 ABCA 366
- Oosterhoff, A., Text, Commentary and Cases on Trusts (Toronto: Carswell Company, 1992).
- Waters, D., and others, Waters' Law of Trusts in Canada (Toronto: Thomson-Carswell, 2005).