What is a hybrid trust?

A hybrid trust is a mix between a discretionary trust and a unit trust.

A discretionary trust is where the beneficiaries do not have a fixed entitlement or interest in the trust funds. It is therefore up to the trustees discretion to determine which beneficiaries are to receive the income and capital of the trust and how much each is to receive.

In a unit trust, beneficiaries have a fixed interest in all the property that is subject of the trust. The difference between a unit trust and a discretionary trust is that in a discretionary trust the beneficiaries rights to income and capital are subject to the discretion of the trustee.

Why is a hybrid trust used?

Hybrid trusts are used as they include the benefits of both unit trusts and discretionary trusts. There is also income tax, capital gains tax and asset protection that is attached to hybrid trusts, which means they are commonly used when structuring a business or investment.

A hybrid unit trust will usually be set up to combine the best elements of a unit trust in conjunction with the best elements of a discretionary trust. In order for a hybrid unit trust to be used successfully, the hybrid unit trust deed needs to be drafted properly.