In part 2, we will be covering the more complex issues relating to Unit Trusts, such as the nature of a Unit Trust and the duties of the Trustee.

Unit trusts, as separate legal entities, are not like companies or individuals. They are unique, as they constitute a relationship between Trustee and beneficiary (also known as Unitholders). This relationship is, to some extent, formalised insofar as the rights that flow on from owning those units are structured similarly to company shares.

For the trust to be effective, the Settlor pays the Trustee an amount called the Settled Sum. The Trustee holds this property, along with any other agreed property or finances in accordance with the provisions of the Trust Deed. The Settled Sum, along with any other property, together comprises the Trust Fund.

Under the Trust Deed, it will usually specify when the trust comes to an end, called the Vesting Day. It can, however, be ended earlier if determined by the Trustee. In general, the Trust Fund is made available to all beneficiaries on the Vesting Day.

The Trustee is empowered to do all things that a company or individual could do with their own property. These powers of investment are specifically set out in the Trust Deed.

Trustee Duties

As a Trustee, you have many responsibilities, which are entrenched in statute and common law precedent. For example, a Trustee must act in good faith and with the best interests of the beneficiaries in mind. Of course, the Trustee must act in accordance with the law and the terms of the Trust Deed.

In terms of liability of the Trustee, the Trustee will not be liable for their actions as Trustee, provided they act in accordance with the law and the terms of the Trust Deed. This means that a claim made against the Trustee by a unitholder will not be enforceable if the Trustee can be shown to have acted in accordance with their duties.

If the Trustee is actually a company, then the actions taken by the Trustee must be made in the presence of the directors of the Trustee. This means that decisions made on behalf of the trust must be made in a company meeting in accordance with the company constitution, during which minutes should be kept.

Another duty is to maintain up-to-date accounting records. If the Trustee is also a company, the company ought to maintain two separate sets of accounting records, one that relates only to the business of the company, and the other for activities carried out as Trustee.

If the Trustee’s only role under the Trust Deed is to act as Trustee, i.e. no business transactions will be engaged in, the accounting records and bookkeeping should be fairly standardised, changing very little annually.

It is important that the company remains compliant with its duties conferred under the Corporations Act, such as the requirement to notify any changes in directors and their share ownership.

There are a number of financial transactions that need to be recorded on the books of account managed by the Trustee. These include things like distributions of income and any payments made, or receipts collected, by the Trustee. These transactions should be formalised on a profit/loss statement or balance sheet prepared for every financial year.

Conclusion

There are many legal considerations when setting up a Unit Trust, particularly in relation to the Trustee’s duties.

If you don’t fully understand these duties, or need assistance in drafting the terms of the Trust Deed, contact LegalVision on 1300 544 755. Our team of commercial lawyers will happily assist with setting up, administering, or advising on the rights and duties with respect to a Unit Trust.

James Douglas

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