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What is a Unit Trust & When Should I Use One?
A unit trust is another form of trust which can be used as the structure for some businesses. Unlike a discretionary trust, in which the trustee has a discretion to distribute income or assets to beneficiaries, under a unit trust, each unit holder has a specific number of units and they are usually entitled to a fixed proportion of the income each year and have a fixed entitlement to a proportion of the total assets.
Unit trusts are often used for property development projects where there are a number of independent parties who come together for a specific property development. They can also be used in other business structures where there are groups of unrelated investors. Care needs to be taken in deciding whether or not to use a unit trust as there are some complex issues to consider, including tax issues. If you are using a unit trust, then it is also important to consider putting in place a unit holders’ agreement which sets out in detail the rights, liabilities and obligations of the unit holders.