Trusts — ‘True or Bare’?

The answer to this rhetorical question is not something that is immediately apparent in the majority of cases, the intent of the settlor being the determining, if not only, factor. The determination of whether a trust is being used as a cloak for fraud or abuse, or is a sham, will be aided by reference to the doctrine of substance over form. Where a trust has but the appearance of legal effectiveness (and where the settlor either reserves the power to direct the trustee, or where such power is conferred upon the beneficiaries, such that the settlement is not intended to have any legal effect), the trust may be described as a bare trust. The essential characteristics of a bare trust are that either the settlor or the beneficiary has real, dispositive control over capital and interest (such that the whole of the equitable ownership of the trust property remains in the settlor), notwithstanding the existence of a trust instrument designating a trustee and beneficiary.