A Bare Trust is essential when a Self-Managed Super Fund (SMSF) borrows money to buy a property, creating a structure that separates the property from other assets in the SMSF. This setup, known as a Limited Recourse Borrowing Arrangement (LRBA), ensures that the lender’s recourse is limited only to the property purchased with the borrowed funds, safeguarding the remaining SMSF assets. By law, a Bare Trust is required to facilitate this protective arrangement, as it legally holds the property on behalf of the SMSF.

Beyond regulatory compliance, a Bare Trust adds a critical layer of asset protection. Should any issues or claims arise related to the loan or property, only the property within the Bare Trust is at risk, protecting the other assets within the SMSF from potential legal or financial complications. This structure not only adheres to SMSF borrowing laws but also aligns with the long-term goals of SMSF investors seeking both growth and security in their property investments.