Another Tax Saving Vehicle

BY GARY M. SULLIVAN

I appreciated the article highlighting the tax impact of investment returns (“A Taxing Problem,” JofA, May00, page 51).

My clients have also benefited from the tax efficiency of unit investment trusts (UITs). Typically targeted toward specific themes, such as worldwide wireless or Glass-Steagall companies, they have a buy-and-hold strategy to maximize tax efficiency. At the end of the holding period investors can roll their shares or take in-kind exchanges allowing them to further defer their taxable gain.

  • UITs have other benefits as well:
  • Known portfolio.
  • Diversification. Portfolios can be diversified across many securities, offering one for almost every asset allocation need.
  • Low expenses.
  • Daily liquidity. Units may be redeemed on any business day at the redemption price.
  • Professional portfolio selection and supervision.
  • Full investment in the market. UITs have limited cash positions.
  • Ease of ownership. With one low minimum purchase investors can own a diversified portfolio of securities without making a substantial commitment of time or capital.

To summarize, UITs are a tax-saving vehicle for investing in a particular segment of the market without having to commit too much capital.

Gary M. Sullivan, CPA/PFS, CFP
Burlington, Massachusetts

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