Unit trust
The Jersey Trusts Law defines a unit trust by its investment participation purpose or effect.
Meaning under Jersey law
The Jersey Trusts Law defines a unit trust as a trust intended to give people with funds available for investment a way to participate as beneficiaries in profits or income from property. The definition also covers a trust that has that effect, so the stated purpose alone is not the full test.[3]
The provision describes returns from acquiring, holding, managing, or disposing of property. It does not limit the definition to a particular type of property or require that participants receive a fixed return.[3]
General usage
Outside Jersey, a unit trust is usually a pooled investment vehicle. Investors hold units in a fund that a trustee holds and a manager runs, and the vehicle is typically regulated as a collective investment scheme when it is offered to investors. A U.S. person who holds units in a foreign unit trust faces passive foreign investment company questions in addition to any trust-classification and reporting questions.
Creation and neighboring terms
Under Jersey law, a unit trust can be created only through an instrument in writing. The same law says other trusts may come into existence in any manner, including an oral declaration, a written instrument, or conduct, subject to the written-instrument exception for unit trusts.[3]
The Jersey definition does not determine an arrangement's classification under U.S. federal tax regulations.[3]
U.S. federal tax classification
The regulation says that arrangements commonly called business or commercial trusts may instead be classified as business entities when they function as profit-making enterprises. It also addresses investment trusts separately: an investment trust is not classified as a trust if the agreement gives power to vary certificate holders' investments.[2]
These provisions mean that the Jersey definition and the federal tax classification rules answer different questions. The regulation's relevant distinction turns on the arrangement's actual function and its terms, including whether investments may be varied.[2]
Related reading
Trust provides the broader trust relationship context for this term. Trust instrument explains the document used to record a trust's terms. Proper law of a trust covers which jurisdiction's law governs a trust. Domestic trust addresses a separate U.S. federal tax classification term.
Questions and answers
What does Jersey law mean by a unit trust?
It means a trust established or operating to let people with investment funds participate as beneficiaries in profits or income from property. The definition includes returns connected with acquiring, holding, managing, or disposing of property.[3]
Does Jersey law require a written instrument for a unit trust?
Yes. The law states that a unit trust may be created only by an instrument in writing, while it permits other trusts to arise through several forms, including oral declaration or conduct.[3]
Does the Jersey definition decide U.S. federal tax treatment?
Jersey law defines the term unit trust. The U.S. regulation separately examines an arrangement's purpose, operation, and terms when classifying it for federal tax purposes.[3]
How does the U.S. regulation treat investment trusts?
An investment trust is not classified as a trust under the regulation if its agreement gives power to vary certificate holders' investments. The regulation discusses this separately from ordinary trusts and business trusts.[2]
Related terms
- Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
- Trust instrument: The Hague Trusts Convention describes a trust instrument as a document that creates a trust or writing that evidences it. It also describes trust terms.
- Trust variation: Trust variation means a change to a trust's terms or powers. Jersey, Cayman Islands and Bermuda laws and the Hague Convention address related terms and rules.
Related guides and articles
- How the IRS classifies trusts for U.S. tax purposes: U.S. trust classification for tax purposes: ordinary and investment trusts, U.S. person status, and the environmental remediation trust rule in the regulations.
- What a trust means under U.S. and international law: Trust terms and structure, the Hague Convention's rules, and U.S. tax classification and limited reporting rules, all explained plainly for U.S. citizens.
- Reserved Powers in Trust Instruments: Trust instruments may reserve powers to a settlor or grant them to others, while listed statutes address their validity and whether a holder becomes a trustee.
Related pages
Sources and data notes
- HCCH, 1985 Hague Trusts Convention. https://www.hcch.net/en/instruments/conventions/full-text/?cid=59. Retrieved .
- Internal Revenue Service, 26 CFR 301.7701-4. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
- Jersey Legal Information Board, Trusts (Jersey) Law 1984. https://jerseylaw.je/laws/current/l_11_1984. Retrieved .
- Cayman Islands Legislature, Trusts Act (2021 Revision). https://legislation.gov.ky/cms/images/LEGISLATION/PRINCIPAL/1967/1967-0006/1967-0006_2021%20Revision.pdf. Retrieved .
- Legislature of Bermuda, Trusts (Special Provisions) Act 1989. https://bermuda.fm/legislation/1591. Retrieved .
Dates in this block record when each source was read for this page.