Introduction
At A One Accountants, we believe in giving you clear, practical information before you make any decisions. Below is a hybrid trust set up general outline to help you understand how this structure works, including the combination of unit trust and discretionary features, the role of the trustee, and key conditions in the trust deed.
What Is a Hybrid Trust?
A hybrid trust is a combination of a unit trust and a discretionary trust.
- Underlying structure– The foundation is a unit trust. This means most distributions are made according to fixed unit holdings of the members.
- Discretionary element– A special form of payment can be applied in specific circumstances.
This dual nature gives you both certainty and flexibility.
How the Discretionary Payment Works
Let us walk you through a real example.
Example: The sale of a rent roll.
- The discretionary aspect allows for capital distributions of a non-fixed proportion.
- The trustee (in this case, the director of the corporate trustee) holds the discretion to make such payments.
- Important rule– The trustee must receive written acknowledgement of acceptance or approval of the discretionary distribution from all unit holders.
- Veto right– If any unit holder disagrees with the discretionary payment of a non-fixed entitlement, they can veto the distribution. If that happens, the distribution cannot be made.
This veto power protects all unit holders from unexpected or unfair discretionary decisions.
The Trust Deed – Read It Carefully
The trust deed for this structure is prepared by some of the top lawyers in the country.
At A One Accountants, we strongly suggest that you become well versed with the conditions of the trust arrangement once the deed is provided. Do not sign anything you do not fully understand. We are always here to help you review and explain the terms.
When Does the Trust Begin?
The trust is set up to begin on the Start Date, which is clearly defined in the trust deed.
Technically speaking – The trust begins when the trustee receives property for the first time. In practice, this usually takes the shape of a small cash contribution from the first unit holders to the trustee, in exchange for the trustee issuing the first units.
Normal practice – It is extremely common to specify a nominal amount of 10 $1.00 ordinary units. In fact, it is likely your accountant has done exactly that.
How Long Does the Trust Last?
Unless the unit holders decide on a shorter or longer timeframe, the trust will end 80 years from the Start Date.
Why 80 years?
This relates to something called the “law against perpetuities” in equity. The law states that it is impossible to create a trust that will last forever.
The policy reason
Property should eventually vest in someone who is capable of dealing with it completely, rather than being governed “from the grave” by a trust that never ends. The 80-year limit reflects this long-standing legal principle.
Ready to Discuss Your Situation?
This outline gives you the foundation. But every client’s situation is different.
At A One Accountants, we take the time to understand your goals and explain how this structure fits – or does not fit – your needs.
Contact us today. Together, let us discuss your alternatives.