Hybrid Unit Trust
Hybrid Unit Trust
Use - Flexibility and Tax Minimisation
Hybrid unit trusts operate essentially as a unit trust but the Trustee is empowered to distribute income and/or capital at his discretion to beneficiaries. The beneficiaries include the following:-
- all Unit Holders
- The shareholders of a corporate Trustee;
- The shareholders of any corporate Unit Holders;
- The employees of the Trust;
- The beneficiaries or unit holders of any trust, the Trustee of which is any Unit Holder of the hybrid unit trust;
"relatives" including the grandparents, parents, uncles, aunts, brothers, sisters, cousins, spouses, nephews, nieces, widows, widowers, associates, children, grandchildren and remoter issue of any Unit Holder or of any of the Beneficiaries and the spouses, widows, widowers, dependents, children, grandchildren and remoter issue of the immediate family;
the Trustees or Trustee of any trust or settlement (whether arising by will or by reason of a disposition inter vivos) from time to time in existence under which the Unit Holder or the Beneficiaries or any relative has a beneficial interest (whether or not any person or persons not being a relative also has an interest);
- any corporation in which any Unit Holder or the Beneficiaries or any relative is a member;
- charities and religious groups.
This lets the trustee of the hybrid unit trust distribute income and capital to a very wide range of entities. Further, the amount and timing of distributions are completely at the discretion of the trustee of the hybrid unit trust.
Tax minimisation ON SALE OF BUSINESS
If the business operated through the hybrid unit trust is sold, and there is a capital gain, that gain can be distributed to non-unit holders (ie the beneficiaries) who may be entitled to a tax concession.
STRUCTURE
The following parties are involved in a hybrid unit trust:-
Trustee
This entity, either one or several individuals or a company, is charged with the responsibility of administering the Trust, including investing the Trust Funds and deciding to whom the distribution of trust income is to be made. Any decisions made by the Trustee should be minuted and retained with the records of the Trust.
The assets of the Trust are held in the name of the Trustee - in its capacity as Trustee for the Trust.
The Trustee may resign from its role by tendering its resignation to the unit holders.
Unit Holders
The unit holders may consist of one or more entities - which may be individuals or companies. It is common for unit holders to be trustees of family trusts or superannuation funds.
Classes of Units
We can create different classes of units which can assist in producing a tailored structure for your hybrid unit trust.
For example, if there are several unitholders, each unitholder can hold their own class of units and the trustee can be obliged to make distributions in accordance with the rights and entitlements attaching to those classes of units.
Alternatively, different classes of units can have a sole right or entitlement attached to them, for example, A Class units can confer the right to vote; B Class units can confer the right to receive income, etc.
When you place your order with us, please advise how the hybrid unit trust needs to be structured for your purposes. Refer to the next page for examples.
TYPES OF HYBRID UNIT TRUSTS
Any unit trust can be tailored to meet specific requirements. At present, we can offer three types of structure:-
TYPE 1
In this type of hybrid unit trust, there are A and B class units. The A class units entitle the holders to vote and to receive the capital of the trust on a winding up. The B class units entitle the holders to receive income distributed by the trustee of the trust during the tenancy of the trust. Of course, the trustee is at liberty to distribute income and/or capital of the trust to the Beneficiaries at any time, as a separate exercise to the distribution of income and/or capital to unitholders.
TYPE 2
This structure is similar to Type 1, but the rights are fully divided as between:-
A class units Capital entitlements only
B class units Income entitlements only
C class units Voting entitlements only
TYPE 3
This suits a different requirement, whereby the rights and entitlements attaching to the A, B, C, etc classes of units are identical and, therefore, distributions of income and capital must be made equally to the holders of the A, B, C, etc class units. Additionally, the beneficiaries are similarly divided into A, B, C, etc classes and distributions to the beneficiaries must be made equally - although, within each beneficiary group, there remains total discretion.
For example, if Mr Smith held 10 A class units and Mr Jones held 40 B class units, any distribution to the A class beneficiaries (ie Mr Smith's family) must represent 20% of the total distribution to all beneficiaries - and the distribution to the B class beneficiaries (ie Mr Jones' family) must represent 80% of the total distribution. This effectively removes the discretion of the trustee to distribute on a discretionary basis to any of the beneficiaries, although, within each class of beneficiaries (ie within each family group), the distribution will be at the trustee's discretion.