To properly take advantage of a unit or hybrid trust, it is necessary to obtain sound legal and tax advice. Our Sydney Trusts Lawyers and Sydney Asset Protection Solicitors are highly experienced in establishing and maintaining trust structures.
Unit trusts are commonly set up by Asset Protection Lawyers and Trusts Solicitors for group families entering business or joint investment ventures. One of the defining characteristics of a unit trust is that each beneficiary has a fixed interest in the capital and income of the trust through the issue of units. Beneficiaries are therefore often referred to as unitholders in a unit trust. Income or profits made by the unit trust is apportioned to each of the unitholders in accordance with how many units they hold.
Units in a discretionary trust are somewhat analogous to shares in a company, with the very significant distinction that shares do not confer a proprietary or beneficial interest in the assets or property of a company. On the other hand, units provide the unitholders with not only a right to receive income in accordance with the trust agreement, but an equitable proprietary interest in all assets of the trust. Accordingly, unitholders have a right to a portion of the assets and property of the trust in circumstances where the trust is terminated.
In terms of asset protection, unit trusts provide a considerable level of defence against individual unitholder creditors and claimants. The assets of the unit trust are shielded from claims being made by creditors of the unitholders – with the exception that the units held by unitholders may be sequestered by creditors. Conversely, in circumstances where the trust fails, creditors of the trust cannot make direct claims against unitholders.
Hybrid trusts draw on the strengths of both unit trusts and discretionary trusts. Hybrid trusts are incredibly complicated and have been the subject of litigation and scrutiny in a wide number of cases. In terms of asset protection, hybrid trusts provide a similar defence to unit trusts.
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