Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

In the context of trust law, what is another name for a 'Bare Trust'?

1. Active Trust

2. Simple Trust

3. Spendthrift Trust

4. Discretionary Trust

The correct answer is: Simple Trust

A bare trust is often referred to as a "simple trust" because it represents a straightforward arrangement where the trustee holds assets for the benefit of one or more beneficiaries. In a bare trust, the beneficiaries have a direct and immediate right to both the trust's income and capital, meaning they can instruct the trustee to transfer the assets to them at any time. This contrasts with other types of trusts that may involve complexities, such as the trustee having discretion in distributing income or capital or added provisions aimed at protecting the assets from creditors. In the context of a bare trust, the minimal complexity and direct beneficiary rights are what designate it as "simple." This simplicity is a defining characteristic that differentiates it from other trust types, such as discretionary trusts, where the trustee has the authority to decide how and when distributions are made, or spendthrift trusts, which are designed to protect beneficiaries from their own spending habits by restricting their access to the trust's assets. Consequently, "simple trust" serves as an appropriate alternative name for a bare trust, highlighting its straightforward nature and the limited obligations placed on the trustee.