Unit Trusts

A Unit Trust is an extension of the Discretionary Trust. The Trustee in this case is bound to deal with the Trust in accordance with the terms of the Trust Deed for the benefit of the current Unit Holders whose participation in the Trust is evidenced by the issue of Unit Certificates.

A Unit Trust is different from a Discretionary Trust in that the property of a Unit Trust is held upon trust absolutely for the persons who for the time being are the holders of the Units in the Unit Trust and there is absolutely no discretion to distribute the beneficial interests in capital and income among the unit holders.

Some examples of the way in which unit Trusts are currently used are:

• Diverse and unrelated individuals come together to have a relationship a little like shareholders but with a "pass through" capability for tax purposes. Because there is no "discretion" on distribution of beneficial interests, agreement can be structured up front according to negotiated terms, even though the parties have no other relationship.
  
• Units in a Unit Trust can be redeemed more easily than reducing capital in a company. In this case, an employee may hold Units as part of his employment contract, and the units are redeemed when employment is terminated.

We have attached an opinion written by a leading Sydney firm. This will give you a little more detail if you are interested.