A Bare Trust is generally the simplest form of trust. This arrangement involves the trustee holding a particular item of property for one or more specifically identified beneficiaries. Under a Bare Trust, the trustee has no duties to perform beyond handing over the property to the beneficiaries when instructed to do so.
A Bare Trust used for Limited Recourse Borrowing Arrangements (LRBA) was introduced to satisfy the requirements of sections 67 A&B of the Superannuation Industry Supervision Act 1993. A Bare Trust used for LRBA is established to allow an SMSF to borrow money for an asset. A lending entity is prohibited from having recourse to any asset of the Superannuation Fund other than the asset held in trust by the Trustee of the Bare Trust. Bare Trusts include a number of provisions which address the requirements of the Act - that the Trustee:
- is only permitted to hold one asset on trust (under each Trust arrangement),
- must account to the Trustee of the Superannuation Fund for any income received from the Trust asset; and
- must in the Deed be required to transfer the asset to the Trustee of the Superannuation Fund if requested once the loan has been repaid.