What is a 'Unitholder'

A unitholder is an investor who owns one or more units in an investment trust or master limited partnership (MLP). A unit is equivalent to a share, or piece of interest. Unitholders are afforded specific rights that are outlined in the trust declaration, which governs the trust's actions.

BREAKING DOWN 'Unitholder'

The most common type of unit trust is an investment vehicle that pools funds from investors to purchase a portfolio of assets. These unit trusts invest in many asset classes of stocks (large cap, small cap, domestic, international, etc.), bonds (investment grade, high-yield, emerging market, tax-free, etc.), real estate and other securities. There is a whole spectrum of risk/reward choices for investors in these unit trusts. The unitholder gains exposure to a pool of securities and is free to trade units at any time, though unit trusts tend to be less liquid than, say, an exchange-traded fund (ETF), and the price of the traded unit may not be equivalent to net asset value (NAV) of the unit trust per share.

Unitholders may also have an interest in an MLP, an investment vehicle that offers significant tax advantages to both general and limited partners. Most MLPs are in the energy sector. For example, pipeline companies prefer the MLP structure to offer preferential tax treatment of cash flows to partners and unitholders. Unitholders are attracted by the high-income yields of MLPs.

Unitholder Taxation

For unit trusts, unitholders pay income taxes on interest, dividends and capital gains distributed to them if the units are held in a taxable account. IRS Form 1099 is sent by the unit trusts to all unitholders. In the case of MLPs, each unitholder's proportion of income, gains, deductions, losses and credits is reported on Schedule K-1. If the net amount is positive the unitholder pays tax on a pass-through basis whether or not a cash distribution was actually received; if there is a net loss, the amount can be carried forward and used against future income, but only from the same MLP.

  1. Cash Distribution Per Unit (CDPU)

    Cash distribution per unit is a measure that refers to the amount ...
  2. Master Limited Partnership - MLP

    A master limited partnership, or MLP, is a limited partnership ...
  3. Canadian Income Trust

    A Canadian Income Trust is an investment fund that holds income ...
  4. Halloween Massacre

    The Halloween Massacre refers to Canada's 2006 decision to tax ...
  5. Royalty Income Trust

    A royalty income trust is a type of special-purpose financing ...
  6. Equity Unit Investment Trust

    An equity unit investment trust is a publicly offered, pooled ...
Related Articles
  1. Investing

    The Benefits of Master Limited Partnerships

    Master Limited Partnerships offer tax benefits while also providing liquidity, but they can be complicated.
  2. Investing

    Unit Investment Trusts Market: 3 Trends in 2016

    Learn more about unit investment trusts (UITs), and discover some of the most common trends in the UIT market to date in the year 2016.
  3. Personal Finance

    Avoid MLPs, Despite High Dividends

    Learn why investors should avoid MLPs even though there are high yields because of volatility in oil prices, high distribution payouts and overleveraging.
  4. Investing

    MLP Investors to Benefit Under a Trump Tax Regime

    Trump’s new tax plan could spell big savings for investors in master limited partnerships.
  5. Financial Advisor

    Understanding How Top Trust Companies Operate

    Trust companies perform a wide range of services related to investment and asset management. Learn why to use a trust company and what they can do for you.
  6. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  7. Investing

    If MLP Investing Is Dangerous, Are REITs Safe?

    Learn the similarities and differences between MLPs and REITs, including a taxation summary and what macroeconomic pressures affect each investment.
  8. Investing

    Boost Your Portfolio Yield With Alternative Income ETFs

    The majority of ETF income investors focus their portfolios on dividend-paying stocks and bonds to generate yield. However, those traditional asset classes have now risen to the point where their ...
  9. Managing Wealth

    How ING Trusts Have Surprising Tax Advantages

    Learn how ING trusts can be used to shield assets from state income taxes and provide additional protection for high-wealth individuals.
  10. Managing Wealth

    Pick the Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
Trading Center