What Is a Bare Trust in British Columbia Real Estate?

Sometimes a buyer cannot or does not want to be on title. A parent may be asked to hold a home for an adult child, or a friend may be asked to sign on someone's behalf. The usual way to describe that arrangement is a bare trust.

This article explains the idea in plain words and points out the places where British Columbia rules can catch people out. Reporting and tax rules for trusts change, so treat this as a map of the questions to ask, not a substitute for advice.

This article covers the law of British Columbia.

What a bare trust means

In a bare trust, one person (the trustee) is registered on title. Another person (the beneficiary) is the one who is really entitled to the property and its benefits. What the trustee must do under a particular arrangement depends on how it is set up, so it is worth confirming with a lawyer.

The point to understand is that the name on title and the person who truly owns the benefit of the property can be different. That gap is where most of the problems, and most of the paperwork, come from.

• Trustee: the person whose name appears on title.
• Beneficiary: the person who is meant to enjoy and control the property.
• Written trust terms: the document that records who is who and what happens if circumstances change.

How it affects title and registration

Title in British Columbia is registered in the names of the owners shown at the land title office. A trust arrangement sits behind that registration, so someone searching title may not see the real owner.

Trusteeship also changes how co-ownership works. A true joint tenancy requires identical interests, and if a person holds their interest as a trustee, a true joint tenancy is not established. If you are the trustee and also a co-owner, the right of survivorship may not work the way people assume.

The online survivorship filing for a deceased joint tenant is meant for owners who are individuals holding as joint tenants. If an owner is a corporation, trustee or limited-partnership partner, the registry directs you to contact a legal professional.

Death, tax and gifts

If a registered owner dies and there is no survivorship, the deceased's interest vests in the personal representative, and the land must be registered in the personal representative's name before further dealings are registered. Registering that transmission generally needs a court-certified Grant of Probate or Grant of Administration, a court-certified disclosure statement, a Form 17 per parcel and a Property Transfer Tax Return. A written trust agreement helps the personal representative understand what the deceased held for someone else.

Tax depends on how the arrangement is set up. For a gift of capital property, the federal rule is that it is treated as a sale at fair market value on the date of the gift, and where a non-arm's length sale is below fair market value the proceeds are deemed to be fair market value. There is no general rollover for a gift to a child, so gifting a home to a child is a deemed sale at fair market value. How the principal residence designation applies to a gifted home depends on your situation, so it is worth confirming with an accountant.

A change of use to or from a principal residence is generally a deemed disposition at fair market value, and a sale of a former principal residence is reported on Schedule 3 and Form T2091(IND). Whether and how a bare trust must be reported to tax authorities is something an accountant should confirm against current rules.

For provincial Property Transfer Tax, the principal residence exemption (code 05) is generally described as applying where the transferee is a related individual of the transferor and a Canadian citizen or permanent resident, and where the property was a principal residence for a continuous period of at least six months immediately before the transfer. The exact requirements can vary, so confirm the current ones before you rely on the exemption. Siblings are not on the list of related individuals. Land over 0.5 hectares (1.24 acres), or land not classified residential, is not fully exempt: the exemption applies to the residential improvements and land of 0.5 hectares or less, with a partial-exemption formula for the rest. Whether moving title into or out of a trust qualifies depends on the facts.

Risks for the trustee and the beneficiary

Being on title can create exposure for the trustee, and not being on title can leave the beneficiary relying on a promise. Both sides should think about what could go wrong.

• Relationship breakdown: family property includes property owned by at least one spouse and a beneficial interest of at least one spouse in property, so a beneficial interest can count even when the spouse is not on title.
• Proof: a spouse who claims that property is excluded must demonstrate it. Clear paperwork matters.
• Death of the trustee: the estate must deal with title through a personal representative, which adds time and cost.
• Mortgage lenders: a lender's consent to who is on title is a contract question, so check your mortgage terms.

What to do next

• Write down who is the trustee, who is the beneficiary and who pays the mortgage, taxes and repairs.
• Sign a written trust agreement before or at the time title is registered.
• Ask an accountant about current trust reporting and about tax on any gift or transfer.
• Check your mortgage for rules about changes to title.
• Have a lawyer review the plan, especially if you are separated, in a new relationship or planning an estate.

A short conversation before registration is usually much easier than fixing an unclear arrangement later.

Frequently asked questions