Difference between discretionary and unit trusts

Are you?
– Setting up a new trust?

At a glance:
– Taxpayers should consider the different trust structure that best suit their circumstances.

You should:
– Compare the different trust structures.
– Contact us if you require any clarification or advice.

In Australia, there are several types of trust structures, of those, the most common are discretionary (family) trusts and unit trusts.

A discretionary (family) trust sets out, through the execution of a trust deed, the purpose for which the trust has been formed, including:

• Guidelines on the operation/investments for the trust; and
• Benefits to be distributed to beneficiaries.

A unit trust is a trust that divides trust property into a fixed number of units that will determine agendas such as:

• Benefits to be distributed to unitholders;
• Liability for the debts of the trust; and
• Power to appoint and remove trustees from the trust.

A unit trust is more suitable for unrelated parties operating a profit-making activity while a discretionary trust is more suitable for related parties such as a family operated business.

Remember:
– Each trust structure suitability will depend on the purpose of the activity.