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How to Dismantle a Unit Trust

How to Dismantle a Unit Trust

Trusts, and more specifically unit trusts, are a complex area of law. Read this article to get a handle on how to terminate one.

13th March 2019

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.

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.

Have more questions? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Author
Tashfia Tasnim

Tashfia is a Legal Tech Intern at Lawpath as part of the Content Team. She is in her second year of Bachelor of Laws and third year in Bachelor of Business Administration at Macquarie University. She is interested in Social Justice and Commercial Law.