Consider this if…
- Two or more families, investors or business partners need fixed interests
- A property, development or business venture will be jointly owned
- Decision-making, funding and exit arrangements need clear rules
- Each party needs advice on how to hold its units
- The trust structure must align with accounting and tax advice
How it works
Initial consultation
We learn about the parties, the asset or business and what each party will contribute.
At the start
Structure advice
We recommend the trustee arrangements and discuss how each party should hold its units with their professional advisers.
After the consultation
Deed and unitholders agreement
We draft both documents and establish a corporate trustee company if one is required.
After the structure is agreed
Signing and unit issue
We guide signing, issue the units and address any duty requirement applying to the documents.
When the documents are approved
Registrations and handover
We coordinate the relevant registrations and bank-account steps and explain how the trust and its governance should operate.
After establishment
What is a unit trust?
A unit trust is a trust in which beneficial interests are divided into units, in a similar way to shares in a company. Each investor, called a unitholder, holds a specified number or class of units. The deed defines the rights attached to those units, including entitlements to income and capital.
As with other trusts, a unit trust is not a separate legal entity. The trustee holds the assets and enters contracts in its capacity as trustee. Many unit trusts use a corporate trustee, with the participating parties represented through the company's ownership, board or agreed governance arrangements.
Unit trust or family trust?
Entitlements. A unit trust ordinarily gives each unitholder defined rights based on the units held. In a discretionary family trust, eligible beneficiaries do not have the same fixed interests and the trustee decides how distributions are made under the deed.
Who it may suit. A unit trust can suit unrelated parties or different family groups that require certainty about their respective interests. A discretionary trust may better suit one family seeking flexibility within its beneficiary class.
Asset protection. Units are property belonging to the unitholder and may be exposed to claims against that unitholder. A discretionary beneficiary's position is different because they do not ordinarily own a fixed share of trust assets. Neither structure guarantees protection, and control, guarantees, administration and the circumstances of a claim all matter.
Using both structures. Each participating family may consider holding its units through its own family trust. This can give each family a defined interest in the joint venture while retaining flexibility within its own structure. The tax, duty, finance and succession consequences should be assessed before units are issued.
Why establish a unit trust?
Clear, fixed ownership
The deed records the units issued and the rights attached to them. This gives the parties a defined economic interest rather than leaving distributions to another person's discretion.
Joint ventures and property investment
Unit trusts are used for jointly owned investments, property projects and businesses involving unrelated parties. Suitability depends on the asset, financing, participants, intended holding period and tax advice.
Tax treatment through the structure
Trust income is commonly assessed to unitholders according to their entitlements, subject to the deed and tax law. Eligible capital gains may retain relevant tax characteristics when distributed, but this is not automatic and the tax treatment must be confirmed with the parties' accountants or tax advisers.
Entry and exit
The deed may allow units to be issued, transferred or redeemed when investors enter or leave. That does not make a change consequence-free: capital gains tax, duty, landholder rules, financing consents, valuation and pre-emptive rights may apply even if the underlying asset is not retitled.
A corporate trustee
A company acting as trustee may separate the administration of the venture from the parties' personal affairs and can simplify changes in management. It does not remove all liability. Directors' duties, personal guarantees and liabilities arising under law or contract still require consideration.
Unit trust setup checklist
Before establishing the trust, the parties should settle:
- a name for the unit trust;
- the trustee structure, including whether to register a corporate trustee and how each party will be represented;
- the initial unitholders, the units each will hold and their issue price;
- whether each party will hold units personally or through a family trust, company or superannuation fund;
- a professionally drafted unit trust deed, signed and dated correctly;
- a unitholders agreement covering governance, funding, transfers, exits and disputes;
- any duty requirement applying to the deed in the relevant state or territory, completed within the required period; and
- the unit register, unit certificates, TFN, any required ABN and other registrations, and a bank account in the trustee's capacity for the trust.
What is included in our unit trust service
Our service includes:
- structuring advice coordinated with each party's accountant or tax adviser;
- a tailored unit trust deed drafted by our lawyers;
- registration of a corporate trustee company, if required;
- a unitholders agreement covering control, funding obligations, pre-emptive rights, valuation, exit and dispute resolution;
- unit applications, unit certificates, a unit register and first trustee minutes;
- guidance on duty and land-tax issues and on TFN, ABN and GST registration, coordinated with the relevant adviser;
- drafting intended to support fixed-trust treatment where relevant to land tax, tax losses or franking credits, subject to specialist tax advice and the applicable statutory tests; and
- legal advice on a self-managed superannuation fund investing in the unit trust, coordinated with the fund's accountant, auditor and licensed financial adviser where required.
How we establish the trust
We begin by understanding the parties, the proposed asset or business and what each party will contribute. We then recommend the trustee arrangements and discuss how each party may hold its units, subject to its own accounting, tax and financial advice.
Once the structure is settled, we draft the unit trust deed and unitholders agreement and establish a corporate trustee if required. We guide signing and the issue of units, address any applicable duty step, and coordinate the trust's registrations and bank-account requirements. At handover, we explain how the governance documents operate and which decisions must be recorded.
Invest together with confidence
Call (03) 9427 7641 or send an enquiry to speak with a unit trust lawyer. We will explain the available options and help establish clear ownership and governance from the start.
This page provides general information only and is not legal, tax or financial advice. Please contact us for advice about your specific circumstances.
Frequently asked questions
We are buying property or starting a business with another couple. Why use a unit trust rather than a family trust, company or our own names?
A unit trust can give each party a defined interest while a discretionary family trust does not ordinarily give unrelated family groups fixed entitlements. Personal ownership may expose participants directly to liabilities, while a company has different tax and distribution characteristics. A unit trust with a corporate trustee may combine fixed interests with a separate trustee structure, but it is not automatically the best choice and does not guarantee limited liability or a particular tax result. The asset, financing, expected growth, exit plan and each party's circumstances should be reviewed with legal and tax advisers first.
Should we hold our units personally or through our family trust?
Personal ownership means the units form part of the individual's property and income is assessed in that person's circumstances. Holding units through a family trust may provide distribution and succession flexibility and a degree of asset separation, but the result depends on control, administration, creditor risks and tax law. This choice should be made before units are issued because a later transfer can trigger capital gains tax, duty, finance and consent issues.
Who makes the decisions, and what happens if we fall out or one party wants to leave?
The trustee makes trust decisions under the deed. Where a company is trustee, its board makes those decisions subject to the company's constitution and any agreement. A unitholders agreement can require unanimous approval for reserved matters, regulate further funding, establish deadlock and dispute procedures and deal with sale, illness, incapacity, separation or death. It can also give existing parties pre-emptive rights and set a valuation process. These arrangements are best agreed before a dispute arises.
How is a unit trust taxed? Can we retain profits or claim its losses personally?
Trust income is commonly assessed to unitholders according to their entitlements, while undistributed income and accumulated losses can be treated differently under tax law. Losses generally remain in the trust and are subject to rules governing whether they can be used against future trust income. A company may be more suitable where profits are intended to be retained for growth. The parties should obtain accounting and tax advice before choosing the structure or acquiring an asset.
Is there duty or tax when units change hands or a new investor joins?
There may be. A sale, transfer, redemption or issue of units can have capital gains tax consequences and may attract duty where the trust holds land or other relevant property. Landholder thresholds and rules differ between jurisdictions, and financing or contractual consents may also be required. Advice should be obtained before any units are moved or issued.
Related services
Call (03) 9427 7641 or send an enquiry to speak with a unit trust lawyer.
Invest together with confidence