A “bare trust” is a useful tool in estate planning. It is used to document the intention of a legal owner to hold title of an asset for the sole benefit of another person. The legal owner is the “bare trustee”. The other person is the “beneficial owner.” The bare trustee’s name remains on title but he (or she) may only act on the instructions of the beneficial owner.
A good estate plan often involves transferring an asset to another person or a trust. However, British Columbia applies a Property Transfer Tax (PTT) to transfers of property at the time that the change of title is registered at the Land Title Office. This PTT can therefore be an expensive hurdle to effective estate planning.
Fortunately, the PTT only applies if the change of title is registered. The bare trust permits the beneficial ownership to be transferred without registering a change of the legal title. Clark Wilson partner, Richard Weiland, described the use of bare trust planning in a previous article.
The recent 2016 British Columbia Budget may create some jeopardy for this bare trust planning. Page 65 of the Budget states that: “the province will require transferees acting as bare trustees to declare information in relation to settlors and beneficiaries of a trust … that will include names, addresses and citizenship.” It is not entirely clear whether this requirement to declare information will apply at the time that any bare trust is created (even if there is no intent to make any land title office filing), or whether it will apply only when an existing bare trustee applies to register a transfer of the title (i.e. on a future land title office application after the bare trust has been created).
A requirement to declare information may not on its own interfere with bare trust planning. However, two concerns arise.
First, in at least one past court case (Graham v. Smith), the Registrar of the Land Title Office, upon learning that a title was held in bare trust, insisted that the bare trust be registered, and that PTT be paid, before any further title change would be accepted. Fortunately, the bare trust planning was able to be “saved” in this case through other arrangements, but that “saving” mechanism might not apply in every circumstance.
Second, this Budget change may signal an intent by the province to pursue an Ontario model, which implements a Land Transfer Tax that applies to both legal and beneficial transfers.
The declaration of information requirement is proposed to: “begin shortly after the amendments to the Property Transfer Tax Act are in place in order to ensure that the data collection is compliant with other provincial statutes and will allow lawyers and notaries who practice real estate conveyancing to prepare for the new information requirements.” The Budget also confirms that “[d]ata that is collected will be shared with the Canada Revenue Agency…”
In summary, bare trust planning remains an important and useful tool – even if some information sharing does become required. Nonetheless, particular attention will be required to ensure that the planning is effective, and does not create unintended consequences.
Furthermore, if the province does go ahead with further restrictions on the use of bare trusts, then hopefully it will at the same time fix some of the overly restrictive PTT prohibitions. A good start would be to confirm that PTT should not apply when a person transfers title of a principle residence from their own name personally into their own name as a trustee of a trust that benefits only that same person. That one change would relieve much of the need for using bare trusts in estate planning.