What is the difference between a fixed trust and a fixed unit trust?

While there are similarities between a fixed trust and a fixed unit trust, their fundamental differences revolve around issues of structure and benefit apportionment. The main differences will be itemized thus. At One Pacific Trust, we provide comprehensive insights to help you understand these distinctions, ensuring you make informed decisions about your trust structures.

1. Fixed Trust:

• Structure: A fixed trust is a trust in which the beneficiaries have a fixed or invariable entitlement to the trust's income and capital. That means, the document of the trust explicitly states what each beneficiary must get and, thus, leaving no kind of discretion to the trustee.
• Control: The trustee has limited or no discretion in the distribution of income and / or capital; he or she is to act strictly in accordance with the trust deed.
• Beneficiaries: These are normally named individuals whose shares or entitlements are fixed in the trust deed.

2. Fixed Unit Trust:

• Structure: Identical to a fixed trust but is divided into units, as shares would be in a company. Each unit would be representative of an undivided interest in the income and capital of the trust.
• Control: As the entitlements for unit holders will be fixed by reference to the number of units they hold, limited discretion will remain with the trustee.
• Beneficiaries: These would not be named individuals but unit holders. Their entitlement to trust income and capital would be determined by the number of units they own.
• Flexibility: While fixed trust has an already predetermined entitlements to particular beneficiaries, fixed unit trust allows flexibility as far as the interest transfer is concerned. The units can be sold or transferred like any other share in a company.

Key Differences:

• Entitlement Representation: Entitlements in a fixed trust are directly linked to specified beneficiaries. In a fixed unit trust, there is entitlement accruing to units which are then traded.
• Flexibility: Fixed unit trusts have more flexibility in amending the ownership structure since units may be transferred, whereas in the case of a fixed trust, the arrangement would be inflexible with pre-determined entitlements of the beneficiaries.
• Suitability: Fixed unit trusts are applied in an investment scenario where numerous investors, referred to as unit holders, combine resources, while a fixed trust may be considered in either a family or estate planning situation where clearly defined entitlements exist for individuals.

Both provide protection for the distribution of income and capital in pre-set amounts, even though they serve different purposes, depending on whether one needs flexibility or how beneficiaries or investors are arranged.