Hybrid Unit Trusts

What is a Hybrid Unit Trust used for?

A hybrid unit trust is used when the persons to benefit from the trust include:

  • unitholders
  • legal entities which do not hold units (the beneficiaries). These are essentially the same beneficiaries as provided for in our standard discretionary trust deeds and are generally family members or associates of the unitholders.

This provides an extensive pool of entities which can receive a distribution of income and/or capital from the trust and avoids the need (and cost) of establishing a discretionary trust.

A hybrid unit trust can be provided with units of the same class, or with units of different classes.

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 the unit holders and the beneficiaries
  • 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 (if classes of units are required), 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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