New York Estate Planning & Elder Law Blog
The U.S. federal Securities and Exchange Commission (“SEC”) offers guidelines to Unit Investment Trusts (“UITs”). A fixed portfolio of securities with specific expiry, UITs are a trust vehicle for high wealth investors looking for estate portfolio diversification. The composition of UITs, generally a portfolio of bonds, stocks, and other securities, remains the same for the duration of the trust. Similar with primary market, closed-end fund products and open-ended mutual funds, UITs require a collective of investors.
The “Right Blend”of Diversification
For investors looking for diversification, UITs offer a unique investment model for stable financial planning. Both bond trusts and stock trusts can be formed as unit investment trusts. Bond UITs offer consistent income at a lower risk rate. Payments from bond UITs continue until date of maturity, at which time the full asset is paid out to investors. Stock UITs “issue a fixed number of units (like closed-end funds)” at initial public offering (“IPO”) during a period. IPO unit purchases offer “unitholder” investors a net cost basis in a trust.
Bond UITs invest in domestic and foreign corporate and government bonds, and stock UITs in a mix of domestic and international stocks. UITs have the option of buying securities directly from the issuing investment company. The average minimum investment requirement of about $1,000 per unit makes secondary market UITs attractive trust vehicles for the purposes of annual dividend payout, and capital gains taxation avoidance. When stocks reach targeted capital appreciation, unit dividend income is distributed to investors.
Termination and Early Redemption
Distinct from closed-end funds or mutual funds, UITs have an expiry date for termination. The expiry date is based on the individual investments in its portfolio. Termination of a UITs investments coincides with proportional distribution of the portfolio’s net assets to its investors at time of maturity. Investors can also sell their units back to the issuing investment company early. The Financial Industry Regulatory Authority (“FINRA”) defines UIT rollover as “sell” 100 days or more prior to the termination date. Early redemptions are based on the current worth of the underlying market value of those units.
Investor Participation
The SEC provides that UITs must meet disclosure requirements with an investor prospectus highlighting investment objectives, fees, and other key information about the activities of the trust. Once formed, UITs do “not have a board of directors, corporate officers, or an investment adviser to render advice during the life of the trust.” For information about formation of a unit investment trust, contact a licensed attorney at law specializing in estate and trust planning.
Estate Law Firm NY
Ettinger Law Firm is a licensed New York attorney practice with experience in high wealth estate planning and probate litigation. Contact Ettinger Law Firm for a trust planning consultation.
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