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Legal and Beneficial Ownership

In an earlier blog we discussed the two types of ownership of property, Joint Tenancy and Tenants in Common.  Joint Tenancy and Tenants in Common are fairly easy to understand, because they are straight forward, but there are a few other types of ownership, which you should know about. These alternate forms of ownership can affect your ability to deal with your land. In this blog, I am going to discuss the concepts of legal and beneficial ownership. Legal ownership and beneficial ownership are two different things. Legal ownership of property is the person on title which has no real value to it. And the beneficial ownership is the actual property owner. The Legal owner is not the true owner of the property; he/she holds the title for the beneficial owner. The person, who owns the property, owns the both, the legal title and the beneficial title, but in some circumstances it is not the same.

Legal owner: The legal owner is the person under whose name the property is registered. Under the Legal ownership the legal owner has no right to sell or rent the property and has no right to make any decision about the property. The Legal owner is not the true owner; but merely holds the title for the true owner.

Beneficial owner: The beneficial owner as the “real owner” of the property is entitled to receive all revenue from the property and is the decision maker with respect to all aspects of the property. The beneficial owner determines the rent charged, the terms of any leases or tenancy agreement, who to hire as a property manager, who to finance the property with and when to sell the property. The beneficial owner has all control over the property. Beneficial ownership can be used when parents want to protect their future and they also want their kids’ names be as owners of the property. For example; grandparents want to give their property to their grandchildren, but they also want to keep some control of the property, in that situation they can transfer the legal title, but they can keep the beneficial title.

To facilitate the division between the legal and the beneficial owner there should be a legal structure called a bare trust. A Bare trust is a type of a company which is used to hold a legal and registered title to the property as nominees, in trust for the beneficial owner of the property. The share of the bare trustee company is owned by the beneficial owner.  It acts on the directions of the beneficial owner. It is a single purpose company, created to hold the specific property, with no other history and assets.  It cannot hold more than one property with another company for different properties. The legal relationship between the bare trustee and a beneficial owner is needed to be set out in the bare trust agreement. There are so many advantages of having a bare trust. The transfer of the beneficial ownership is not registered in the land title office, so as the transfer is not filed, it is not subjected to pay the Property Transfer Tax, but if the transfer is for some reason, registered with the land title then the beneficial owner is subjected to pay the Property Transfer Tax.

When the purchaser buys the property, the purchaser will buy the beneficial interest in the property at the decided value and will also buy a share in the bare trust for $1.00.

The other advantage of the bare trust is that it allows multiple co-owners to hold the beneficial interest in the property, with only a bare trustee on the title. It also allows changes in co-owner without paying the Property Transfer Tax.

While there are many advantages of having a bare trust, there is also a disadvantage of it. It is very costly to establish and maintain the trustee company. It costs approximately $1,200 to incorporate a trustee company and prepare the bare trust agreement. And the annual cost of maintaining the bare trustee company is approximately $300 per year.

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