The primary difference between discretionary and unit trusts is how they handle distributions made by the trust.

Discretionary Trust

In a discretionary trust the beneficiaries do not have a fixed entitlement to the income or capital of the trust. Instead it is up to the discretion (hence the name!) of the trustee to distribute income in accordance with the terms of the deed.

Unit Trust (Non fixed)

In a unit trust units are issued to unit holders. This is very similar to how shares are issued in a company. Just like company shares there may be more than one class of units which have different rights to income/capital attached to them. The rights attached to the different classes are set out in the trust deed.

Unit Trust (Fixed)

If there is only one class of unit in a trust then it is called a Fixed Unit trust. This means that each of the unit holders have the same rights in proportion to their unit holdings. This type of trust is usually formed to purchase property as they can be drafted to access the land tax threshold. If you are purchasing a trust for this purpose we highly recommend contacting a lawyer such as legalvision.


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