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The defining characteristic of a unit trust is that the trust property is divided into shares called units. These units can be allocated to beneficiaries in a similar manner to the way shares are allocated to shareholders in a company.

The Trustee holds the assets of the trust for the unit holders who are entitled to the capital and income of the trust funds in the same proportion as the number of units that they hold.

One differentiating characteristic between shareholders in a company and unit holders in a Unit Trust is that whilst shareholders have no interest in the actual company assets, unit holders do have an interest in the property of a Unit Trust.

Some of the advantages in a Unit Trust are that the units:

  • Describe the unit holder's interests in the assets and the income of the Unit Trust;
  • Are easily transferrable, and;
  • Can be re-acquired by the Unit Trust's trustee. 

 

The Unit Trust also has the advantage that:

  • There is less regulation than for an incorporated organisation;
  • There can be tax advantages compared to a company structure;
  • A Unit Trust is easier to wind up than a company;
  • There are few problems with redeeming units from a unit holder, and;
  • The Trust Deed can be customised to suit the needs of both principals and beneficiaries.

 

Despite the attraction of the Unit Trust there are some disadvantages that must be considered:

  • The units are themselves are regarded as an asset by a bankruptcy trustee and as such can be sold by that bankruptcy trustee  to raise funds to pay creditors;
  • Tax-fee distributions are more difficult to make from a Unit Trust than from a Discretionary Trust;
  • As a beneficiary's interest in the assets of the Trust and right to receive income is based on their unit holding there is less flexibility in distributions and less reliance on discretion.

 

For further information as to whether a Unit Trust would be suitable for your unique circumstances This email address is being protected from spambots. You need JavaScript enabled to view it. for a no-obligation discussion.

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