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A unit trust is a legal arrangement where a trustee holds and administers trust property for unitholders’ benefit. Unit trusts can be commercially useful and provide certain tax benefits. This article explains the process to set up a unit trust, including selecting the roles in a unit trust, preparing the trust deed and other necessary documentation, and stamping the trust deed.

1. Choosing Roles in a Unit Trust

The two key roles in a unit trust are the trustee and the unitholders.

The trustee of a unit trust is the person or entity that is the legal owner of a trust property. They are responsible for administering the trust property for the unitholders’ benefit. As the legal owner, the trustee liable to legal action in their capacity as a trustee. Hence, to limit personal risk, the trustee of a unit trust is typically a corporate trustee. 

The unitholders of a trust are people or entities who hold a beneficial interest in the trust. These people usually contribute capital to the trust by purchasing units. To distribute trust property to each unitholder, you should consider the number of units held by each unitholder and the rights attaching to their units. 

2. Drafting the Trust Deed

A trust deed establishes and governs a unit trust. A trust deed will set out key terms relating to the governance of the trust, including the:

  • powers of the trustee to manage the trust;
  • rights attaching to various units; and
  • trust’s vesting (the date on which the trust will expire and the trustee must distribute the trust assets to unitholders).

The trust deed will also indemnify the trustee out of the trustee’s assets against any claims made against the trustee due to legitimate actions it has taken. However, it should exclude indemnification in the case of improper actions taken by the trustee.

3. Preparing Other Necessary Documentation

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

  • application forms for units;
  • certificates for units held; and
  • register of unitholders.

The register of unitholders lists the names and addresses of those who own units in the trust and the number and type of units they own. The register should be kept up-to-date. You will need to update this record if any unitholders sell their units or if the unit trust issues additional units.

4. Settle Your Trust

Depending on the terms of your trust deed, you may require a settlor to settle the trust. Many unit trusts do need a settlor. However, if your unit trust requires a settlor to be established, the settlor will sign the trust deed and pay a nominal sum to the trustee. 

5. Shareholders and Unitholders Agreement

Ordinarily, if a unitholder purchases units in a unit trust, they will also purchase a percentage of shares in the corporate trustee. Consequently, their ownership interest is consistent in the corporate trustee and the unit trust. 

It is beneficial for the shareholders of the corporate trustee and the unitholders of the unit trust to enter into a shareholders and unitholders agreement to deal with the governance of the trust. Compared to a trust deed, a shareholders and unitholders agreement goes into more detail about the decision making and control of each trust. Likewise, these agreements can set out additional rights and protections for the shareholders or unitholders.

Some terms which may be covered in a shareholders and unitholders agreement include:

  • rights to appoint the directors of the corporate trustee;
  • setting out which decisions require corporate trustee approval and which require unitholder approval;
  • convening shareholder or unitholder meetings;
  • pre-emptive rights on the issue of shares and units;
  • restrictions on the transfer of shares and units; and
  • restraints and non-compete clauses.

6. Consider Stamp Duty

In certain states and territories, you will need to stamp and pay duty on your trust deed within a certain period after you establish your trust. The process to stamp a trust deed and the amount of duty payable varies between jurisdictions. It is best practice to engage a commercial lawyer to advise on the correct process for establishing a unit trust in your jurisdiction. 

7. Additional Registrations

After you establish your unit trust, you can set up a bank account for the trust and apply for any additional registrations.

For example, your unit trust will need a TFN to lodge a trust income tax return. It will also need a TFN if the unit trust is conducting business activities. If the unit trust needs to register for GST, it can do so. If your unit trust is paying staff, it will also require PAYG registration.

Key Takeaways

A unit trust is a popular business structure because of its fixed entitlements and certain tax benefits. If you would like to establish a unit trust, you should obtain business structuring advice to ensure that it is the best structure for your business. Once you decide to proceed, there are several steps to establish a unit trust, including installing the correct documents and completing the appropriate registrations.

If you require assistance to set up your unit trust, contact LegalVision’s commercial lawyers on 1300 544 755 or fill out the form on this page.


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