The commercial usefulness of unit trusts means that they are likely to remain a prominent part of the Australian financial landscape for the foreseeable future. If you would like to set up a unit trust, this article is a practical guide to establishing a unit trust.

1. Roles in Unit Trusts

Like all trusts, a unit trust requires both a trustee and beneficiaries of the trust. Before you begin, answer two questions:

  • Who will be the trustee?
  • Who are the beneficiaries?

Trustee
The trustee of a unit trust legally owns the trust property. As such, they occupy a position of trust. Your choice should reflect this. As the legal owner, they can be personally sued in their capacity as trustee. For this reason, your trustee should be a corporation. In this way, the limited liability of the corporate structure will protect the personal assets of company directors from suit, provided there is no proven impropriety. For caution, the trustee company should hold only trust assets.

However, your trustee does not decide the distribution of trust assets and income to beneficiaries. That is determined by the units held. All beneficiaries have contributed equity to the trust. In return, they have been issued units that reflect their capital investment. While all units are equal, the entitlements that attach to a unit can vary. For example, a unit may entitle you to income or capital or both from the trust. Like a share, a unit can be traded.

Beneficiary
As outlined above, the beneficiaries are the individuals or corporations that have contributed capital to the trust itself. They hold a beneficial interest in the trust.
If you are setting up a unit trust, do get professional legal assistance. While it may seem easy when perusing the proforma options available, only a professional can listen to you and understand your exact needs.

2. Draft the Trust Deed

The next step is to compose the deed for your unit trust. Discuss your particular needs with a legal professional. Your lawyer can then draft a deed that reflects both best practice and your wishes. While Pro-Forma deeds may seem cost effective in the short term, they can prove costly if difficulties or disputes later arise. Your deed will detail:

  • The trust’s vesting date (the day on which the trustee distributes trust assets);
  • How the trustee must manage the trust;
  • The rights attaching to the various units; and
  • The trustee’s legitimate remuneration.

Your deed should also indemnify the trustee from trust assets in the event of a suit. However, it should exclude improper actions on the part of the trustee.

3. Prepare Other Necessary Documentation

Setting up a unit trust also requires other documentation. This includes:

  • Application Form for units
  • Certificate for units held
  • Register of unit holders

The register of unitholders requires specifics including names and addresses. If a unitholder is a corporation, you will need details about the company’s directors and chairperson.

If the trust intends to hold property, you may also need a letter to your state or territory revenue body requesting a determination that the trust is a fixed trust. Of course, this will depend on the particulars of your trust. In Australia, all landholders – including trusts – must pay land tax (unless they qualify for an exemption). The amount payable depends on the trust. For example, in NSW a fixed trust pays tax calculated in conjunction with the amount paid by the trust. Conversely, land tax for a special trust is computed differently. Some but not all unit trusts qualify as fixed trusts. A legal professional can provide you with advice on this issue.

4. Settle your Trust

You are now able to settle the trust. A settlor signs the deed and pays a nominal sum to your trustee. Ideally, a settlor is an independent party such as your accountant or lawyer. For income tax reasons, they should not be a beneficiary of the trust itself.

5. Stamp the Trust Deed

You will need to stamp and pay duty on your deed in every Australian state and territory within a given amount of time. The exact amount and period vary between locations. For example, in NSW stamp duty on a deed is $500.00 payable within three months. Any additional copies of the deed itself cost an additional $10.00 each. Always seek professional legal advice.

6. Take Care of Business

You are now ready to apply for a Tax File Number (TFN) and Australian Business Number for your trust. You can apply online. This process is not immediate so make sure you allow yourself plenty of time. You will also need a bank account for the trustee in their name. Most banks require certain information. Check with them beforehand.

You have now set up a unit trust. If you have any questions about setting up a unit trust, get in touch with LegalVision’s trust structuring lawyers.

Carole Hemingway

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