High Wealth Investors Benefit from Diversified UITs

The U.S. federal Securities and Exchange Commission (“SEC”) guidelines for Unit Investment Trusts (“UITs”) apply to securities investment vehicles. UITs offer high wealth estate owners investment portfolio diversification. For this reason, the investment portfolio composition of UITs is comprised of bonds, stocks, and other securities. UITs are structured to support broad investor interest, including assets from the markets, open-ended mutual funds, and closed fund products as part of the blend.

The “Right Blend” of Trust Diversification

For investors seeking the right blend of diversification, UITs offer a unique investment vehicle for stable investment strategy. Bond trusts and stock trusts can be formed as unit investment trusts, exhibiting the structural flexibility of the trust model. Bond UITs invest in domestic and foreign corporate, and government bonds, and stock UITs in both domestic and international market stocks.

Bond UITs afford consistent income at a lower risk rate. Payments from bond UITs proceed until date of maturity, at which time the full asset of the contract is paid out. Stock UITs “issue a fixed number of units (like closed-end funds)” presented as initial public offering (“IPO”) during a period, or secondary market security, however IPO unit purchases offer “unitholder” investors a net cost basis in a trust.

UITs have the option of buying securities directly from the issuer. The average minimum investment requirement for direct purchase is about $1,000 per unit. This of course, makes secondary market focused UITs more attractive for trust diversification, as the lower cost per unit is usually well-balanced by annual dividend payout, and capital gains taxation avoidance. Notwithstanding those investors preferring high exposure with the expectation of exponential payouts, most UITs are foremost directed at stability. Regardless of strategy, when stock UITs reach a targeted capital appreciation amount, unit dividend income is distributed to investors.

Early Redemption and Termination

Different from mutual funds and closed-end funds, UITs have a designated termination dates determined by the latest expiry date of the aggregate of individual securities contracts within a trust’s investment portfolio. Termination of a UITs investment coincides with the distribution of the portfolio’s net assets to its investors at time of maturity. Trust investors also have the option of early redemption sell of units to the issuer. The federal Financial Industry Regulatory Authority (“FINRA”) limits UIT rollover “sell” 100 days or more prior to the termination date. Early redemptions are based on the current market price of the underlying value of a securitized unit.

Trust as Investor

The SEC provides that UITs must meet disclosure requirements including the publication of investor prospectus highlighting the trust’s investment objectives, activities, fees, and other key reporting information. 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 unit investment trust formation consult with an estate planner, financial advisor, or attorney specializing in trust investment 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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