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Set up or amend a unit trust

We will set the unit trust up so the entitlements are certain and the amendments do not resettle it.

A unit trust is the opposite of a discretionary one. There is no trustee discretion about who benefits: the units fix the entitlements, in proportion, in advance. That is what makes it the right vehicle for unrelated parties investing together, and the wrong one where flexibility is what you need. The deed governs how units are issued, transferred and redeemed, and getting those mechanics wrong can resettle the trust or trigger duty.

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Entitlements nobody can argue about

Units fix each holder's share of income and capital in proportion, decided in advance rather than later.

An exit that is already agreed

Redemption, pre-emptive rights and the valuation method are drafted before anyone needs to use them.

Amendments tested before execution

A change to entitlements or character can resettle the trust, which disposes of everything it holds.

What is a unit trust, and when is it the right structure?

A unit trust divides the beneficial interest into units, each carrying a fixed proportional entitlement to income and capital. Unitholders know exactly what they are entitled to, which is why the structure suits parties who are investing together without a family relationship. A fixed trust can also access concessions that a discretionary trust cannot, including certain land tax thresholds and loss rules. The trade-off is flexibility: the trustee cannot choose who receives what.

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What is the difference between a unit trust and a family trust?

A unit trust fixes each holder’s entitlement in proportion to their units. A family trust gives the trustee a discretion about who benefits and in what share. Fixed entitlements suit parties investing together without a family relationship. Discretion suits a family that wants flexibility year to year.

Can we change the unitholders later?

Units can be issued, transferred and redeemed if the deed provides for it. The mechanics matter, because issuing units at other than market value or altering entitlements can amount to a resettlement. Transfers can also attract duty. Check before you execute rather than after.

Is duty payable on units?

It can be. Several states charge landholder duty where a trust holds land above a threshold and an interest in it changes hands. The rules and the thresholds differ by jurisdiction. Whether duty applies depends on what the trust holds and how much of it is moving.

What happens if a unitholder wants out?

That depends entirely on the deed. A well-drafted one provides for redemption, gives the other holders a pre-emptive right, and sets a valuation method. A deed that is silent leaves the exiting holder to find a buyer and the remaining holders to negotiate with someone who is leaving.

Get the unit mechanics right before anyone invests

Tell us who is investing and on what terms. We will draft the unit trust so the entitlements and the exit are both certain.

Units fix the entitlements, so the deed has to be exact

Two or more parties are putting money into something together, and a unit trust has been suggested. What has usually not been settled is what happens next. How units are issued when more capital is needed is a deed question. So is what happens when one party wants out, and how a unit is valued on redemption. Left vague, they become disputes at exactly the moment the parties have stopped agreeing.

We will confirm whether a unit trust is the right vehicle for what you are doing.
We will draft the deed so each unitholder's entitlement to income and capital is fixed.
We will set out the mechanics for issuing, transferring and redeeming units.
We will define the valuation method that applies when a unitholder exits.
We will check any amendment against the resettlement risk and the duty position.

You are investing alongside people who are not family

You are going into a property or a venture with business partners, or with investors who are backing it. Everyone is contributing a different amount and everyone wants their share protected. A discretionary trust does not do that, because nobody would accept a trustee choosing the distributions. What you need is a structure where the entitlements are fixed, the exit is defined, and nobody has to rely on goodwill later.

What's included in your unit trust service

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Advice on whether a unit trust suits the arrangement.
A unit trust deed drafted for the commercial terms agreed.
Unit issue, transfer and redemption mechanics.
Pre-emptive rights and a defined valuation method on exit.
Resettlement risk assessment for any proposed amendment.
Duty advice, including landholder duty in each relevant state.

Where unit trusts come apart

Unit trusts rarely fail on the day they are established. They fail on the day someone wants out.

The deed either provides for redemption or it does not. Where it does not, a unitholder who wants to exit has to find a buyer. The remaining parties then have to agree a price with someone who is leaving. Where it does provide for redemption but the valuation mechanism is vague, the argument moves from whether to how much.

The amendment risk is separate and less obvious. Changing unitholders’ entitlements, issuing units at other than market value, or altering the character of the trust can amount to a resettlement. That is treated as a disposal of everything the trust holds. Issuing or transferring units can also attract duty, and in several states landholder duty applies where the trust holds land above a threshold.

From an agreement in principle to a structure that holds

We start with the commercial deal, because the deed has to carry it. Who is contributing what, what each expects to receive, and what happens if one of them wants out are the questions that shape the drafting.

Then we draft the mechanics properly. Unit issue and transfer, pre-emptive rights and the valuation method on redemption all get set out. So do the trustee’s obligations to unitholders. Where you are amending an existing unit trust, we check the change against the resettlement risk. We also check the duty position in each relevant state before anything is executed.

How we set up or amend a unit trust

Fix the entitlements, define the exit, and test every amendment first.

Confirm the vehicle

We check that a unit trust actually suits the arrangement before drafting anything.

Draft the entitlements

We fix each unitholder's share and set out how units are issued, transferred and redeemed.

Test before amending

We check any later change against the resettlement risk and the duty position in each state.

Entitlements fixed and the exit defined before anyone invests

Everyone is agreeable at the start. The reason to do this carefully is that the deed is read for the first time on the day somebody stops being agreeable.

Two of our lawyers are full members of the Society of Trust and Estate Practitioners. One of our lawyers is a Chartered Tax Advisor with The Tax Institute and has held that credential for 25 years. We draft unit trusts for property and business ventures, and advise on amendments where the resettlement and duty consequences need checking first. Where a unit trust is the wrong vehicle for what you are actually doing, we will say so before it is established.

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Get the unit trust drafted properly

Tell us who is investing, on what terms, and what the trust will hold. We will draft the deed so the entitlements are fixed and the exit is already agreed.

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