Question: What is the difference between a unit trust and discretionary trust?Answer:
The main difference between a unit trust and a discretionary trust is what the beneficiaries are entitled to under the trust, and how this is distributed.
A unit trust is a fixed, express trust – the beneficiaries and their interests are explicitly identified in the trust instrument according to the proportion of ‘units’ they hold. These are common for property and investment or where readily transferable interest in the trust is desirable.
Discretionary trusts differ from unit trusts as the beneficiary’s entitlements are not fixed, and are left to the discretion of the trustee who chooses how much, and which beneficiaries will receive interest. These are also known as family trusts where they are used for the distribution of a family’s assets or to conduct a family business.
For more information on family trusts and discretionary trusts see this article.