UNIT TRUST FAQ

 UNIT TRUST FAQ 

  1. 1. What is a Standard Unit Trust?

A Standard Unit Trust is a Trust divided into units all of the same class that gives the unit holders equal rights to vote and share in the distribution of income and capital in proportion to the number of Units held.

A Unit Trust does not have a Settlor

  1. 2. What is a Multi-Class Unit Trust?

This form of Trust is a Trust with different classes of units each having a different right to share in the distribution of capital and income. Some units may have a right to vote and others may not.

  1. 3. What is a Fixed Unit Trust for NSW Land Tax purposes?

This type of trust is found only in NSW.  It must be a standard Unit Trust. The unit holders must at all times be entitled to the income and capital of the Trust (after the payment of normal expenses).  They must be entitled to have the Trust wound up at any time, and upon winding up the Trust the beneficiaries must be entitled if they request to the have any real estate that is owned by the Trust transferred to them.  The Trustee must not have any discretion as to the distribution of income or capital.  There may only be one class of units.

If a Trust meets the requirements of section 3A and B of the Land Tax Management Act then the Trust will not for Land Tax purposes be deemed a Specialty Trust and will be entitled to the benefit of the Land Tax threshold exemptions available in NSW.

If a Trust is entitled to receive the benefit of the Land Tax threshold if a unit holder owns other taxable land (or is a special trust) the unit holder will be assessed for land tax purposes on the combined value of the unit holders’ interest in the land held in the Trust and any other taxable land owned.

  1. 4. What is a Hybrid Unit Trust?

A Hybrid Unit Trust is a Unit Trust that has a division that is a Discretionary Trust.  This type of Trust is a Unit Trust and a Discretionary Trust combined. 

  1. 5. How is a Trustee changed? 

Most Unit Trust Deeds provide that a majority (often 62%) of the unit holders have the power to remove and appoint a Trustee.

It is important for Trustees in NSW to be mindful that if there is a change of Trustee then the Trust Deed must provide or be amended to provide (before the new appointment is made) that neither the retiring Trustee nor the new Trustee can ever be beneficiaries of the Trust.

This is because under NSW Stamp Duty Law if the retiring Trustee can become a beneficiary because of the retirement then stamp duty is charged as if the assets of the Trust had been transferred to the Trustee.

  1. 6. How is a new Trustee added?

The appointment can be verbal or in writing.  The appointment is made by a majority of the unit holders (it is common for that to be a 62% majority).  Preferably it should be in writing.  Generally the appointment is the form of a Deed because a Deed is a more legally binding document. The additional Trustee must, when accepting the appointment, undertake to carry out the duties of Trustee and discharge the obligations contained in the Trust Deed and at law.

  1. 7. How do you remove a Beneficiary?

In a Unit Trust, a beneficiary (unit holder) cannot be removed.

A beneficiary can sell his or her units back to the Trustee (but only if the Trustee agrees to repurchase the units) or sell them to the other unit holders. If no unit holder wants to purchase the units then the units can be sold on the open market if a purchaser can be found.

  1. 8. What is the minimum number of units one can have in a Unit Trust?

If the trust is a Unit Trust then the nature of the trust assumes that the trust is divided into a number of units.  There can be as few as one unit in a Unit Trust though to avoid the possibility of a Unit Trust being deemed to be a Fixed Trust, there should be at least two units.

  1. 9. How is the name of a Deed changed?

It is not possible to change the name of a Deed.  However, it is possible to change the name of a trust.  That is done by the Trustee electing to change the name of the trust and then confirming that election in writing.  A Trustee must ensure that if a trust changes its name that every person who has business dealings with the trust and every unit holder is notified of the change of name.

  1. 10. Does a Trust have to have a Trustee?

Yes, every trust must have a Trustee. This is because the law requires that for a trust to exist there must firstly be some trust property and secondly a Trustee (or Trustees) who holds the trust property on trust for a beneficiary or beneficiaries.

  1. 11. How is the State of Jurisdiction of a Trust changed?

The State of jurisdiction of a trust is determined by where the trust conducts its business.  As soon as trust assets (the trust is made up of the trust assets) are moved from one State to the other then the jurisdiction of the trust moves to the new State.  Trustees must be aware that if a trust is moved from one State to another stamp duty must be paid in the new State (in some States within one month of the trust assets coming into the State and in other States within three months).

 

  1. 12. How is a Trust wound up?

A Trustee winds up a trust by firstly making a Declaration (in writing) that the trust is to vest and the trust assets are to be distributed to the beneficiaries.

The Trustee must collect all of the trust assets and then convert them into cash (unless the Trustee proposes to make an in specie distribution).  All debts of the trust must be paid and all tax must be paid.  The assets (or cash) are then distributed amongst the unit holders in accordance with the unit holders entitlement.

Notice must be given to the Taxation Department that the trust has ceased to exist

  1. 13. If a Unit Holder in a Unit Trust is a Trust, who is to be named as the Beneficiary?

The Trustee of the beneficiary Unit Trust.

  1. 14. Who can be the Trustee of a Unit Trust?

Any individual, company, or incorporated association can be a Trustee provided that the person or directors are not bankrupt, infants, or disqualified persons.

  1. 15. Must the Trustee have an Australian address?

Yes, the address of the Trustee determines the legal jurisdiction applicable to the trust.

  1. 16. How long does a Trust last?

A trust must vest (be wound up and its assets distributed) within 80 years of being set up.  Most trust deeds provide for the trust to have a maximum life of 79 years.  A trust can be wound up at any time within the 79 years.