Class Unit Trusts

What is a Class Unit Trust used for?

A class unit trust is used when the rights between the unit holders are required to be different. The rights of a unit holder are primarily:

  • the right to vote
  • the right to receive income
  • the right to have their capital returned
  • the right to participate in the capital growth of the trust.

There are some situations where the rights are not equally apportioned between all unitholders. For example, you may wish to create a situation where:

  • a unit holder will be given rights to receive income but no right to vote
  • a unit holder may have the right to the capital growth, but no right to income

This is most elegantly achieved by attaching certain rights to different classes of units and issuing those different classes of units to meet your clients’ objectives.

These types of trusts do not fall within the definition of a fixed trust.

What’s required?

There are two parties who must be identified when preparing the documentation for a unit trust. Both of these parties must be legal entities. A legal entity may be one or more individuals, a company or an incorporated association. The individuals must be over the age of 18 years, not bankrupt nor subject to any other legal or mental disability.

  • The trustee, whose role is to:
    • hold the assets of the trust in its name
    • administer the trust, investing the trust funds and keeping its records
    • distribute trust income and capital to those unit holders holding appropriate units
  • The unit holders – the unit holders generally have the right to remove and appoint the trustee and whose consent is a necessary pre-requisite to any changes to be made to the trust deed.

We also need to know the rights to be assigned to each class of unit, how many units of each class each unit holder will acquire and the funds paid for each unit.

The trust deed sets out the terms of the relationship between the trustee and the unit holders. It can be used to dictate a variety of procedures or mechanisms in terms of the discharge of the trustee’s duty to the unit holders.

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