Start as a discretionary trust — with the full flexibility to distribute income and capital across your family group. Convert to a fixed unit trust precisely when the time is right. One deed. Two powerful phases.
The MGS Discretionary Conversion Trust is a single trust deed that operates in two distinct phases. During the Discretionary Phase, the trust functions as a conventional discretionary trust: the trustee has absolute discretion to distribute income and capital among a broad class of beneficiaries, accumulate income, and manage the trust fund with maximum flexibility.
On the Conversion Date — which occurs automatically when a person or entity first applies for and is issued units — the trust transitions seamlessly to a fixed unit trust. From that point, the unit trust phase provisions of the deed govern all distributions, redemptions and termination. The conversion preserves the continuity of the trust and does not affect prior vested rights or obligations.
The same deed governs both phases. The conversion preserves the trust's identity, prior vested rights and all obligations — it is not a new trust.
Many clients begin with a discretionary trust because of its unparalleled flexibility. But as circumstances evolve — a business is sold, a joint venture partner is brought in, or a lender requires fixed entitlements — the inability to readily convert can create significant problems.
The MGS Discretionary Conversion Trust solves this by building the unit trust phase directly into the deed from day one. There is no need to execute a separate deed of variation, risk a resettlement, or incur stamp duty on a trust-to-trust transfer. The trustee simply issues units when ready, and the deed does the rest.
The Conversion Date — defined as the date on which the first units are issued — is clean and objective. The trustee records it in the Minute Book and establishes the register. No court order. No ATO ruling. No stamp duty event.
| Feature | Ordinary Discretionary Trust | MGS Conversion Trust |
|---|---|---|
| Initial flexibility | ✓ Full discretion | ✓ Full discretion |
| Can convert to unit trust | Requires deed of variation — resettlement risk | ✓ Built-in — no variation needed |
| Resettlement risk on conversion | ✗ Present | ✓ Eliminated by design |
| Fixed unit holder entitlements | ✗ Not available | ✓ Available from Conversion Date |
| Bankable by lenders | Difficult without fixed entitlements | ✓ Unit Trust Phase provides certainty |
| Joint venture suitability | Limited — no fixed co-investor rights | ✓ Unit structure supports JV partners |
| Income streaming | ✓ Yes | ✓ Yes — both phases |
| Trust continuity on conversion | Uncertain — depends on deed | ✓ Expressly preserved |
The conversion from discretionary to unit trust is automatic, clean and legally certain. No deed of variation, no court order, no stamp duty.
The trust operates as a discretionary trust. The trustee distributes income and capital at absolute discretion among the beneficiary class. The Appointor controls trustee appointment. Unit trust phase clauses have no force or effect.
When the trustee determines the time is right, it invites applications for units. The Conversion Date is the date on which the first person or entity applies for and is issued units. No prior notice or procedure is required beyond the trustee's decision.
The trustee records the Conversion Date in the Minute Book and establishes the unit register. The Initial Unit Holders are entered on the register. Certificates are issued. The discretionary phase provisions cease to apply.
From the Conversion Date, unit holders hold vested and indefeasible interests. Net income is distributed pro-rata by units at year end. Capital distributions follow unit holdings. New units may be issued with 51% consent. The trust operates as a fully compliant fixed unit trust.
The Discretionary Conversion Trust is ideal wherever flexibility is needed today but fixed entitlements may be required in the future.
Commence with discretionary distributions while building equity. Convert to a unit trust when a lender, joint venture partner or co-investor requires fixed, bankable entitlements.
Operate the trading trust as a discretionary trust during the growth phase. Convert to a unit trust when bringing in equity investors, completing a management buyout, or restructuring for sale.
Maximise tax outcomes during early years with discretionary distributions. Convert when adult children or family entities need clearly defined and legally certain interests in the fund.
Set up a structure today that anticipates the client's future needs. Avoid the cost, risk and uncertainty of a future deed of variation or trust-to-trust transfer.
The unit trust phase provides the transparent, pro-rata structure that joint venture parties and their lawyers expect — without starting with a new trust and its attendant costs.
Always obtain specific advice on the tax, stamp duty and state law implications of the conversion for your client's particular circumstances. Contact the MGS Private team for complex matters.
Common questions about the MGS Discretionary Conversion Trust. Contact our team for anything not covered here.
Create your MGS account or log in to your existing account at macquariegs.com.au. Registration is free and takes under two minutes.
Provide details for the trust — Settlor, Trustee, Appointor, Principal Beneficiary and initial beneficiary class. Our form guides you through each field for both phases.
Our team prepares the bespoke Discretionary Conversion Trust deed to your specifications, incorporating both phases. Standard turnaround is 1–2 business days.
The deed is delivered ready for execution by the Settlor and Trustee. Our explanatory memorandum covers establishment, stamp duty obligations and guidance for both the Discretionary Phase and the eventual conversion.
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