What is a trust?
A trust is a legal arrangement where assets are held by trustees for the benefit of one or more people.
Types of trust?
Three common forms of trusts are:
• Bare trust
• Fixed trust
• Discretionary trust
What is a bare trust?
A bare trust is often used for children under the age of 18. A bare trust arises when money is placed in a trust fund in the names of the trustees but is treated as legally belonging to the child at all times.
Why use a bare trust?
• Nominate who benefits from the trust
• The value of the trust can be paid to the chosen beneficiary, without any need to wait for probate in the event of the death of the person(s) making the gift. This is because the gift is made once the trust is complete.
When is a bare trust not suitable?
A bare trust should not be used
• if you wish to retain personal ownership of the money
• if you might need access to the money in the future for your own personal use
• if you (or trustees, or beneficiary) lives, or is intending to live, outside the Republic of Ireland
Remember, the money invested belongs to the beneficiary as soon as it’s invested under trust. From then on, the money can only be used for the benefit of the named beneficiary.
Key questions to consider
Are you certain you won’t need the money in the future?
Once a bare trust is set up, the person you are giving the money to becomes the legal owner.
Who will be appointed as the trustees?
Make sure it is someone you trust and is reliable. It’s also best practice to have a second trustee in case anything happens to the primary trustee.
Who’s the gift for?
It’s a gift, given to the beneficiary. Are you confident that you won’t change your mind about the beneficiary in the future? If there are any doubts, then using a bare trust may not be appropriate.
What age are the beneficiaries?
Typically, a bare trust would be used where the beneficiary is under the age of 18. If your proposed beneficiary is over 18 (or will turn 18 during the life of the trust), a standalone agreement should be examined between the beneficiary and the trustees that gives the trustees authority to hold and manage the trust fund on the beneficiary’s behalf.
In the absence of such an agreement, the trustees.
Capital Acquisitions Tax (CAT)
CAT includes three taxes:
1. Gift tax: arises when an individual receives assets as a gift from another person
2. Inheritance tax: can apply when an individual receives the benefit of an inheritance
3. Discretionary trust tax: can apply when assets are put into trust and held by trustees for the beneficiary
Who pays the tax?
The person receiving the gift is liable for the tax.
Tax-free thresholds
Gifts can be received tax-free from CAT up to a certain amount. The relationship between the person giving the gift or inheritance and the person receiving the gift or inheritance determines the CAT tax-free threshold, known as the ‘Group Threshold’. Any gifts received in the past (since 5 December 1991) within the same Group Threshold are combined. As of Budget 2025, the following are the most recent thresholds.
There are three different groups:
- Child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the person making the gift A €400,000
- Brother, sister, niece, nephew, grandchild or lineal ancestor or descendant is €40,000
- All other relationships, other than those mentioned in A or B is €20,000
CAT is currently charged at 33% on gifts and inheritances. It applies to amounts over the group threshold.
Small gift exemption
The first €3,000 of the total value of all gifts received from one person in a calendar year is exempt from CAT. It does not impact on that person’s tax-free Group Threshold.
For example, grandparents can each give their grandchild €3,000 each year, without the child incurring CAT. The child can potentially receive up to €6,000 annually from both grandparents, tax-free. These funds will not count towards the child’s tax-free threshold. Parents, aunts, uncles and godparents can similarly make gifts of up to €3,000 annually, without the child incurring CAT. If the child is under 18, the grandparent can choose to set up a bare trust so the trustees can manage and invest the money for the child until they are old enough to do so themselves.
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