Dismantling a Unit Trust can be a complicated process. This is because there are responsibilities on an individual or entity to retain the interest of beneficiaries. There are also advantages and disadvantages in creating a Unit Trust. This carries with it both legal and tax obligations.
Unit trust is a fixed, express trust which allocates a share of property for beneficiaries in a trust agreement. There are many beneficiaries to the trusts called Unit Holders. Each beneficiary can be similar to a shareholder and are provided with units like shares in a company. The Units are bought, sold, and taxed.
To terminate a Unit Trust there are specific situations. These include:
- The Unit Trust has achieved its purpose;
- The Unit Holders have chosen not to continue the trust; or
- The Unit Trust has reached its termination date.
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Winding up the trust
There are three ways that you can terminate a Unit Trust:
Revocation
The Unit Trust Deed may contain a provision that allows the trustee, third parties, or settlors to revoke the trust. If there are no provisions, then the trust is binding.
At the discretion of the unit holders
Unit Holders can terminate the fixed trust if they have full capacity. Also, if terminating the trust does not defeat the intention of the appointer.
Distribution
To wind up a Unit Trust capital is distributed to Unit Holders. Accountants then prepare the unresolved tax returns and a Unit Trust Vesting Deed is then drafted and signed.
Considerations when winding up a Unit Trust
When winding up a unit trust, there are a few things that must be considered by the appointer. This includes:
- Following procedures that are mentioned in the Unit Trust Deed.
- Identifying all the possible Unit Holders through a Unit Trust Register.
- Considering all possible tax consequences which may include Capital Gains Tax.
When terminating any kind of trust the most important thing is to always follow the instructions in the Trust Deed.
Further, it’s pivotal that you comply with your obligations as a trustee.
If you believe that your Unit Trust is ready to be wound up, then it is recommended that you consult with a Trust Lawyer to weigh up your options.
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