Unit trust structure

What are the advantages of creating a business structure whereby you have a corporate trustee of a unit trust?

In this situation, the directors will also be the beneficiaries.

From my understanding, limited liability no longer applies in some circumstances due to s197 of the Corps Act.

Is there a better structure to use?

Cheers for the advice.

The solution depends on what you are looking to do - are you happy to disclose more on the forum?

sure, no problems.

We are looking to invest in property and equities. The structure in discussion at the moment means that we will be both the directors of the company and beneficiaries of the trust.

That means that an agency principal effect occurs, right? Does that in any way affect the our liability?

Who is going to own the units in the unit trust?

A few of my clients operate via a similar structure but have their units owned by the respective family trusts (rather than by themselves directly) - this gives more flexibility.

It also makes it easier to transfer partial ownership across to 3rd parties in the future without major costs and the flexibility to distribute any capital gains in a tax effective manner.

The legal protection is still strong providing you keep the corporate trustee as a $2 company that only acts as trustee of the unit trust.

Ensure you have a well drafted unit trust deed and constitution from a good lawyer (i.e. you will be paying more than some generic online provider) and also ensure any potential business partners are not going to cause trouble then you won't have to worry about s197 if you are always doing the right thing!

We were planning to own the units ourselves, not through a family trust. However, a family trust may be a better option.

What are the advantages of using a family trust to own the units?

When you say "providing you keep the corporate trustee as a $2 company that only acts as trustee of the unit trust". Does that mean the company shouldnt enter into any other transactions in its own name?

Thanks for the help!

See [COMMENTS] Below

Also when you get your unit trust deed prepared, talk to the solicitor about a unit holders agreement that formalises any agreements between yourself and you business partner if either one wants to pull out or sell out (to you or a third party).

It may be quite a simply document, and it doesn't have to be done immediately, but should be something you think about and discuss with your business partner.

thanks for the responses guys, been really helpful!

Got a couple more q's though:

1) I dont have a family at the moment and dont plan on starting one for at least 4-5 years. Is it still worth creating a family trust to hold the units?

2) Can you include the "unit holders agreement" in the trust deed? ie. can you combine into one document?

3) In the case whereby a beneficiary dies, does their personal will take precedent over whats contained in the trust deed (in terms of unit distribution)?

Three good questions.

A. The main reason this is suggested is for income splitting purposes to utilise people on lower marginal tax rates, such as a non-working spouse and also smaller amounts to children under 18. You will need to weigh up the cost / benefits.

If you end up transferring the units later on it may be caught as a 'dutiable transaction' and you may have to pay stamp duty (different states have different rules). Also similar thing with potential CGT on the transfer of units down the track.

A. I have asked a solicitor this, the response was it is possible, however it simply provides more flexibility having them as two separate documents and the unit holders agreement was more likely to be updated (and more easily updated) than the amendment of a trust deed. Initial costs would be about the same - most solicitors have standard / template trust deeds and also template unit holder agreements that are customised for each client.

A. The units will form part of the unit holders estate on their death - lumped in with all the other assets. The estate will receive the income as the unit holder, and the executor(s) of the estate would have control over the distributions received.

The distribution is a fixed % based on the units - a Will cannot change this to my knowledge. For discretionary / family trusts there is a document called a 'deed of succession' which can impact on the future distributions and also who the appointor will be etc.

It may be applicable having insurance covering the death of each business partner and applicable buy/sell agreements which basically mean if Person A dies, Person B will receive the insurance and use it to buy Person A's share of the business from the estate of Person A - giving the surviving business partner 100% of the business and the estate ca$h to pay to beneficiaries.

This I feel if good advice for anybody in business with an unrelated party (and also sometimes with family businesses!).

Estate planning is a whole other complicated area and specialist advice should be sourced.

Hopefully this answers your questions.