Bare trust agreements for couples

By Puneet Shroff

When couples embark on the journey of purchasing property together, the excitement of homeownership often overshadows important conversations about individual property rights. A recent Ontario Court of Appeal decision in Qu v. Zhang, 2025 ONCA 391, which affirmed an ex-wife's sole beneficial ownership of a house despite joint title, serves as a reminder that clearly documenting ownership intentions from the beginning is crucial.

What is a Bare Trust?

A bare trust agreement is a specialized legal arrangement where one person (the trustee) holds legal title to property while another person (the beneficiary) maintains full beneficial ownership. The trustee has no independent powers or active duties beyond holding legal title and must act according to the beneficiary's instructions. The beneficiary retains complete control over the property, including all rights to income, use, enjoyment, and disposition, including any risks involved. Although the trustee may hold legal title, the beneficial owner bears all responsibilities for the property.

From a tax perspective, the Canada Revenue Agency generally disregards the bare trustee and treats the beneficial owner as the true owner for tax purposes. Therefore, all income and capital gains realized from the trust property are taxed in the beneficiary's hands. This treatment allows for efficient property transfers that may minimize land transfer taxes or probate fees, since legal title remains with the trustee.

Bare Trust Agreements for Couples

For couples purchasing property together but intending unequal ownership, bare trust agreements provide essential protection. Without proper documentation, courts may apply legal presumptions of equal ownership based on title registration alone, regardless of actual financial contributions or the parties' true intentions. These presumptions can lead to complicated, emotionally draining, and expensive legal battles if the relationship ends. A bare trust agreement creates a clear record of beneficial ownership that courts can rely upon when determining property rights.

Certain scenarios particularly benefit from bare trust agreements:

• One partner is contributing substantially more financially but both names appear on title
• Property is purchased primarily with one partner's inheritance or family gift
• One partner will be solely responsible for mortgage payments and property expenses
• One partner is going on title primarily to satisfy lender requirements
• Partners wish to establish clear ownership boundaries while maintaining their relationship

The Ontario Court of Appeal case

The Ontario Court of Appeal case referenced earlier provides important context for understanding how courts view beneficial ownership. In this case, despite both former spouses appearing on title, the court ultimately recognized one party's sole beneficial interest based on financial contributions and the parties' intentions at the time of purchase. However, this determination came only after protracted legal proceedings, significant expense, and emotional strain. A properly executed bare trust agreement would likely have prevented litigation entirely by clearly establishing beneficial ownership from the outset.

For couples considering property purchase, consulting with a real estate lawyer about a bare trust agreement represents a step toward protecting individual interests while nurturing the relationship. These bare trust arrangements can extend beyond applying to a couple and include situations where a friend helps someone to purchase property. Please contact Puneet Shroff at pshroff@sorbaralaw.com if you would like to enter into a Bare Trust Agreement in relation to real estate property.