• The interests of beneficiaries are different under a unit trust compared to a discretionary trust. There can be dramatically different consequences for the personal taxation of trustees holding shares under a unit trust as opposed to a discretionary trust.

1. Discretionary family trust.

• Under a discretionary trust the trustee has discretion (free choice) about how to distribute or apply the income and capital of the trust. This discretion can be used by the trustee to make distributions to members of the family who are in a lower tax bracket and avoid the cumulative taxation of the entire group.
• The assets of beneficiaries are better protected under a discretionary trust structure because no beneficiary owns any specific legal entitlement to the trust assets until after a distribution has been made to them. If a beneficiary becomes bankrupt it is unlikely that creditors would be able to access trust assets to recover debts.

     B.Unit trust.

• Generally the beneficiaries (or 'unit holders') are given an interest in all certain income or assets of the trust estate. Different rights can be attributed to different units. It is possible to issue units which give a certain beneficiary only limited rights such as to:
• different classes of income of the trust;
• capital of the trust only; or
• capital gains of the trust.

• In a unit trust the interest of the unit holder generally reflects the proportion of units they hold and the trustee does not have discretion (free choice) about how to distribute income. For example if you hold 50% of the trust units then you will always receive 50% of the income from the trust business even if this will negatively impact your taxation affairs.
• Unit trusts are also not ideal for asset protection purposes. If you are entitled to profit from certain trust assets and you become bankrupt your units may be sold in order to pay creditors. This means a beneficiary's assets are not as well protected under a unit trust as under a discretionary trust.