What is a unit trust?

Unit trusts are created with both wealth management and estate planning in mind. A unit trust is not actually a “trust” at all, but rather a form of mutual fund. A unit trust differs from a regular trust in that it’s completely unmanaged and not handled by attorneys, but are sold by brokers.

Investing in a Unit Trust

There is technically no trustee in a unit trust and the beneficiaries are referred to as shareholders. Two other terms used to describe this investment arragement are: a regulated investment company and a grantor trust. In other words, the only beneficiaries allowed on the trust are those who are paying into it. Even more than that, these beneficiaries have voting rights as to whether to keep the trust going. The unit trust packages created by investment banks are then offered as package deals to brokerage firms. Similar to other investment businesses, a unit trust requires a document known as a Trust Indenture to become official. Without this document, the IRS will not recognize the unit trust.

Most people who invest in unit trusts are looking for a means of shelter from unrealized capital gains in their investments. The trick for offering this shelter is that the “trust’s” value is determined by the entry investment amount, not the final net worth of the account. Additionally, unit trusts never gain investment income because all income is paid annually as dividends to the beneficiaries.

Roles of a Unit Trust

The structure of a unit trust is much more complex than a traditional trust and includes five different roles. The fund manager is similar to a trustee in that they actively run the trust and ensure all proper taxes and dividends are paid. The trustees of this trust keep a close eye on the fund manager and verify that the fund manager is working consistently with the investment objectives of the unit trust found in the original Trust Indenture document. The unitholders are those who have have direct access to trust funds at their discretion. The distributors oversee the unitholders and verify that they are working correctly with the fund manager. Finally, the registrars work as a middleman between the fund manager and the stakeholders.

Unit trusts are open-ended, allowing various types of funds to be invested. For instance, a unit trust may contain deeds, cash, cash equivalents, and real property. All of these are placed into the unit trust and can be used by the fund manager to further the trust’s income and create higher dividends. The primary goal of a unit trust is simply to obtain a sizable dividend from your investment.

Case Studies: Exploring the Potential of Unit Trusts

Case Study 1: The Wealth Preservation Unit Trust

Mr. Anderson, a high-net-worth individual, was seeking a wealth management solution to protect his investment gains from capital gains taxes. After consulting with a wealth management specialist, he decided to invest in a unit trust. The unit trust provided a shelter for his unrealized capital gains, ensuring that the trust’s value was determined by the initial investment amount rather than the final net worth of the account.

As a beneficiary with voting rights, Mr. Anderson had control over the trust’s continuation. The unit trust paid out annual dividends, effectively managing his investment income. By utilizing this wealth preservation strategy, Mr. Anderson successfully safeguarded his investment gains.

Case Study 2: The Diversified Unit Trust

Global Corporation, a multinational conglomerate, wanted to diversify its investment portfolio and maximize its returns. They turned to a unit trust as an investment vehicle that offered flexibility and variety. The unit trust they selected allowed them to invest in different asset classes, including cash, cash equivalents, real property, and deeds.

The fund manager actively managed the trust, ensuring the investment objectives outlined in the Trust Indenture document were met. The unitholders, distributors, and registrars worked collaboratively to maintain the trust’s integrity and optimize returns. Through their investment in the diversified unit trust, Global Corporation achieved their goal of obtaining substantial dividends and expanding their investment portfolio.

Case Study 3: The Estate Planning Unit Trust

Mrs. Johnson, a successful businesswoman, wanted to establish an effective estate planning strategy to secure her family’s financial future. She sought the assistance of a wealth management specialist who recommended the use of a unit trust. By creating an estate planning unit trust, Mrs. Johnson could transfer her assets into the trust, allowing for seamless management and distribution upon her passing.

The fund manager, acting as the trustee, oversaw the trust’s operations and ensured that all taxes and dividends were handled appropriately. The unitholders, including Mrs. Johnson’s family members, had direct access to the trust funds when needed. The estate planning unit trust provided Mrs. Johnson with peace of mind, knowing that her assets would be efficiently managed and distributed according to her wishes.

Getting Legal Help

If a unit trust sounds like a useful wealth management option for your portfolio, contact a wealth management specialist for a consultation.