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What is a Unit trust?

A trust is established for (usually) un-related parties with a payment of an amount, called “initial sum” by the initial unit holders to the trustee to be held in trust in accordance with the deed for the benefit of the unit holders.

A unit trust is a trust where the rights of the beneficiaries (unit holders) to income and capital are fixed. This is in the sense that they are not subject to any discretions on the part of a trustee, and are unitized, in the sense that those rights are divided amongst the beneficiaries based on how many units have been issued to them.

A unit trust is where the unit holders, who are all predominantly un-related members of two or more separate families getting together to hold an asset together (usually a large property or shareholding) or run a business together. The trustee has no discretion on which unit holder gets which distribution portion of income or capital of the trust. All income and capital is distributed according to unit holding.

The trustee owns the property of the trust and distributes each year; income of the trust, to various unit holders with a common purpose. This common purpose includes minimizing the total income tax, capital gain tax and asset protection.

The trust runs for 80 years or earlier, this termination date is called “vesting day”, when unit holders are entitled to the whole of the trust fund according to their unit holding. Until that day, the trust assets are held by the trustee.

In a unit trust all units have the same rights to income and capital distribution and voting rights in a meeting.

Why do we need a trust deed?

Trusts are created by a legal document called “trust deed” prepared by a solicitor which outlines the purpose of the trust, the rights and obligations of the trustees and unit holders, powers of the trustee, and identifies various parties such as initial unit holders & Trustee(s).

For a trust to exist four elements must be present. These are:

  • - a trustee;
  • - a beneficiary, (called in the case of a unit trust, a “unit holder”);
  • - trust property; and
  • - an equitable obligation on the part of the trustee to hold the property for the benefit of the beneficiary.
What is a unit?

A unit is a piece of property that entitles the unit holder to a specified proportion of the income and capital of the trust.

A unit held under a trust is different from a share in a company. A share confers on the holder no legal or equitable interest in the assets of the company; Units under the trust deed confer a proprietary interest in all the property which is subject to trust of a deed. In other words, a unit in a unit trust confers on the unit holder an equitable interest in both the underlying capital and the income of the trust.

How to use the Unit?

The Unit is an analogue of some internal monetary unit. The Units are used by unitholders as a means to purchase the gold certificates and energy bonds. The seller of certificates and bonds is Guinea Gold Capital SA. After the purchase of certificates / bonds - Units are returned to the property of the trust.

Advantages of having a company as a trustee

Besides fiduciary duty advantage as listed above, following are other benefits of having a company as a trustee:

  • - Assets of the trust are held in the name of trustee(s), if trustee is a company then private assets of Individual trustees generally cannot be confused as trust assets;
  • - In case of death of individual trustee all assets of the trust have to be again transferred in the name of new individual trustee, however if a company is a trustee, there is no change of ownership of assets even in case of death of director of trustee company;
  • - The directors of Trustee Company can be unit holders in their individual capacity whilst still being in control of the trust.
Advantages of Unit Trust

Unit trusts structure has many advantages over other tax structures like, partnership, company etc, however it has its own limitations. Below is a list of advantages, please note that this list is not exhaustive, you must seek your own independent legal and accounting advice.

Income Tax Advantages
  • - Net income in a financial year is distributed amongst unit holders. This distribution has to be included in the unit holders’ income in the financial year when the trust has earned the income and not the year when the income is distributed, e g, trust income of $10,000 is earned in financial year ended 30th June 2017 and distributed to the beneficiary on 15th August 2018, this income has to be included in the beneficiaries income tax return for the financial year ended 30th June 2017 and not 2018.
  • - The classification of trust income, for example, dividend income, foreign income, or capital gain continues to be recognized under the same classification in the individual unit holder’s income tax return and any imputation credit or foreign tax credits follows through to the unit holder as per trustee’s distribution.
  • - If unit holders are under 18 years of age, by any income distribution to them, trustees can avail their tax-free threshold and low-income rebates.
  • - If unit holder is a company the company will pay tax at company tax rate.
  • - The trustee can decide not to distribute any income of the trust and instead accumulate income of the trust. The trustee is liable to pay tax on the net income of the trust at the highest Individual tax rate. However, the commissioner of taxation has the discretion to charge tax rates applicable to an individual of an identical amount. When income is accumulated, it forms the part of the trust fund and not taxable to unit holders when distributed on vesting date.
  • - Only net income of the trust has to be distributed, a trust can also contribute superannuation for all unit holders in proportion to their unit holding, which means that tax on income of the trust can be limited to tax rate on contribution to a superannuation fund.
  • - If a trust has a loss and has received imputation credits in the financial year, the trustee can lodge its own income tax return and carry forward the loss to the next financial year and claim a refund of imputation credits.
Capital Gain Tax Advantages

- On disposal of any asset of the trust, it is entitled to a 50% discount factor on capital gains, if assets are disposed after one year, this discount flows throw to unit holders’ on distribution.

Asset Protection Advantages

- Any distribution to a unit holder need not be physically paid to them. If the unit holders agree, trustee can retain money which it has decided to distribute to unit holders and establish a bare trust for that unit holder within the unit trust. The trustee can then invest that money on behalf of the unit holder as per powers given to them by the trust deed.

- Money’s belonging to unit holders who are under a legal disability, like minors distribution money from a trust, can be held by the trustee, in trust, till they reach 18 years of age. The trustee may apply money held for minor unit holder in payment of education, clothing and other similar expenses which are for maintenance, education or benefit of minor beneficiary. Alternatively, trustees can distribute minor’s money, to their parent or guardian.

In whose name are assets held by a Unit trust?

The trustee is the legal owner of trust’s property. This means that trustee’s name should appear on all ownership documents, such as shares, managed funds, property etc. However, this ownership of asset is not in his “own benefit”, but as a beneficial owner, on behalf of the trust.

Vesting of Trust
After 80 years of creation date, if the trustee decides, the trust will "vest" or cease. The trustee will on "vesting date", put together all the trust’s property, its capital and distribute to all beneficiaries.