Redding, California, Law Blog

How to use unit investment trusts (UITs)

On Behalf of | Aug 6, 2023 | estate planning, ESTATE PLANNING - Trusts

The world of trusts in the state of California is a particularly complex one. It often involves dozens of potential considerations and a number of trade-offs. Conflicts over trusts and decisions regarding their implementation can take years. Unit investment trusts (UITs) are one of the many trust types that can be particularly helpful in simplifying a person’s finances and helping them make decisions either for themselves or their heirs.

What is a unit investment trust?

UITs are trusts that are collections of securities such as stocks, bonds, or pieces of real estate. This entity differs from a mutual fund because it has a set termination date. There is a date at which the funds in the trust are disbursed to its holders.

Funds in a UIT are also set and do not fluctuate due to the decisions of a manager according to either an active or passive strategy. The asset allocation of a UIT is fixed before the instrument is purchased and no changes are allowed throughout its lifespan. In many instances, a UIT may have a successor if it is particularly successful. Purchases who bought the first UIT may also buy the next one and keep their money in a particular allocation for another twelve- or 24-month period.

When are unit investment trusts necessary?

The UIT is helpful for diversifying a portfolio and expanding investment options for both working people and those interested in estate planning. Diversification is key to helping preserve assets and protect a portfolio from one or two volatile mutual funds. The UII may offer a particularly low fee basis and a unique set of investments that are not offered by mutual funds.

They may also be structured as pass-through entities which results in a lower tax bill upon inheritance. A UIT can help build up the low-risk area of a portfolio and offer a lower degree of volatility than traditional stocks or even index funds. They can be one of many options to help ensure the success of a financial portfolio.