Duhaime's Law Dictionary


Unitrust Definition:

A trust which in the distribution of benefits from time to time to the beneficiary, pools capital and income, and does not otherwise distinguish between the capital of the trust and the income of the trust for the purposes of establishing interim payments to a beneficiary.

Also known as a percentage trust.

The normal form of a unitrust is every year or at some other specified interval, the time of payment to a beneficiary, any income such as dividends or interest, is added to the capital and it is that aggregate that is used for the purposes of establishing the amount of payment, usually a percentage. The invested capital forming the financial core of the trust, is distributed on a total return basis. At the time of payment, or the end of the tax or calendar year, a percentage of the capital and income (sometimes called the unitrust rate) is allocated and paid to the beneficiary.

The unitrust pays its bebeficiaries income as a fixed percentage of the value of its principal, which is revalued annually. Added on to income, beneficiaries receive a fixed percentage of the value of the trust's principal, which is revaluated annually.

The unitrust differs from the other form of trust which might provide that the beneficiary only receives the income from the trust, not the capital.

Some jurisdictions have published statutes which prescribed the form and substance of unitrusts. For example, the 2011 Property Code of the State of Texas, Title 9, "Trusts", §116.007:

"Unitrust means a trust the terms of which require distribution of a unitrust amount. Unitrust amount means a distribution mandated by the terms of a trust in an amount equal to a fixed percentage of not less than three or more than five percent per year of the net fair market value of the trust's assets, valued at least annually. The unitrust amount may be determined by reference to the net fair market value of the trust's assets in one year or more than one year.

A sample unitrust trust clause:

"My Trustee shall invest the trust property and pay to the recipient, the Duhaime Legal Information Foundation of Victoria, British Columbia, in each calendar year, a unitrust amount equal to eight percent (8%) of the net value of the trust property valued as of the last day of each year.The unitrust amount shall be paid in one instalment from trust income and, to the extent income is not sufficient, from principal. Where the income from the trust exceeds the unitrust amount, it shall be added to principal."

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