A unit trust allows all beneficiaries to have a fixed interest in all properties that are the subject of the trust. A unit trust differs from a discretionary trust, where the beneficiaries’ access and rights to capital and income are at the discretion of the trustee. Put simply, beneficiaries of a unit trust will receive capital or income based on the predetermined unit share they hold.
Unit trust key terms
The trustee is normally an incorporated company that has never traded, known as a shelf company. The shelf company is usually set up to act as the trustee of the unit trust. The trustee legally owns the trust and may be responsible for any debts incurred whilst carrying out their duties.
Beneficiaries, beneficially own the trust and appoint the trustee. The trustee’s powers are detailed in the trust deed.
The beneficiaries of the unit trust otherwise known as “unit holders”. Unit holders have fixed rights to the trust’s capital and income.
The trust deed is the document that outlines the unit trust’s purpose. The trust deed also details the unit holders and the trustee’s powers, rights and obligations. The trust deed also lays out how to deal with issues such as how unit holders sell units and how to wind up the trust.
Benefits of a Unit Trust
Unit trusts can be a good option of trust because of certain tax benefits that they provide. Because the trust isn’t a separate taxable entity like a company, the trust’s capital or income is distributed pre-tax. In the event of the trustee’s insolvency, property in trust lies outside what is accessible to satisfy the trustee’s creditors.
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