HYBRID TRUST SETUP
A general outline of the Hybrid trust:
A hybrid trust is a combination of a unit trust and a discretionary trust.
The underlying trust is a unit trust, which means any distributions will be made in accordance with fixed unit holding of the members.
A discretionary payment is a special form of payment, which would generally be applied in special circumstances.
For example: This will allow capital distributions of a non-fixed proportion in case of the sale of a rent roll. The discretionary aspect applies whereby the discretion to make such payments lies in the hands of the trustee. (in this case the director of the corporate trustee). However though, the trustee needs to receive written acknowledgement of acceptance/approval of such a discretionary distribution by all unit holders. If any of the unit holders do not agree to the discretionary payment of a non-fixed entitlement, they can veto the distribution and hence the distribution cannot be made.
The trust deed is prepared by one of the top lawyers of the country and I suggest you be well versed with the conditions of the trust arrangement once the deed is provided.
The trust is set up to begin on the Start Date, which is defined in the trust deed. Technically, the Trust begins when the Trustee receives property for the first time. This will most likely take the shape of a small cash contribution to the trustee from the first unit holders in exchange for the trustee issuing the first units. It’s extremely normal to specify a nominal amount of 10 $1.00 ordinary units, and it’s likely that your accountant has done so.
Unless the unit holders decide on a shorter or longer time, the Trust will end in 80 years from the Start Date. The ‘law against perpetuities,’ as it is known in equity, states that it is impossible to put up a trust that will last eternally. This reflects a policy intention for property to vest in someone who is capable of dealing with it completely at some point in the future, rather than being governed ‘from the grave.’