Hybrid Trust

NI’s hybrid unit trust is a non-fixed unit trust for tax purposes. A hybrid unit trust is a type of trust where units are issued to certain key beneficiaries to represent their interest in the trust. A hybrid trust effectively blends characteristics of unit trusts and discretionary trusts into one arrangement. The hybrid unit trust gives the unitholders a fixed entitlement to capital, but allows income to be distributed to a range of potential beneficiaries. In particular, the trustee has a discretion to distribute income to other ‘Related Beneficiaries’ of each named unitholder (at the request of that unitholder) rather than distributing the income to the unitholder themselves. This structure is generally only used in tightly held groups or family investment activities. While there can be complications arising where trust deeds distinguish between income and capital entitlements (explored in other FAQ posts), those complications are largely circumvented in NI’s hybrid trust deed as any decision to allocate income to a beneficiary other than a unitholder requires the prior consent of that unitholder. There are also a number of potential tax and commercial issues that can turn on whether a trust is a fixed or non-fixed trust and the nature of the rights of each unitholder. We recommend specialist advice is therefore obtained before a deed is established.