Glossary

Bare trust

What a bare trust is in an SMSF borrowing arrangement, and why the property is held in it rather than directly by the fund.

A bare trust is a simple trust structure in which a trustee holds legal title to an asset — typically a property — on behalf of a beneficiary who retains the real, beneficial ownership, and it is a required part of how a self-managed super fund borrows to buy property. Under a limited recourse borrowing arrangement, the property is held in the bare trust rather than directly by the SMSF until the loan is repaid, at which point legal title can be transferred into the fund. For a trustee, setting up the bare trust correctly, before signing a contract to purchase, is a strict prerequisite lenders check closely, since an incorrectly sequenced or structured bare trust can unwind the whole arrangement's compliance.⚠ Lenders financing SMSF property require the bare trust deed, the fund's trust deed and confirmation the borrowing is within the fund's investment strategy before approving finance.

Related

SMSF commercial loans · LRBA

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