Difference between discretionary and unit trusts
– Setting up a new trust?
At a glance:
– Taxpayers should consider the different trust structure that best suit their circumstances.
– 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.
– Each trust structure suitability will depend on the purpose of the activity.