Inherited unit trusts: What to do?

A Fin24.com user writes:

I am one of two beneficiaries who will receive half-shares in the estate of my step-mother. I am resident in the UK and the will will be proved in South Africa.

The bank executing the will has asked me whether I want to receive my half share of the unit trusts as a unit trust, i.e. dividing the existing unit trusts straight down the middle or for my part to be liquidated and paid to me as cash.

The unit trusts involved are Stanlib and Allan Gray. Looking forward to your advice.

Jose Proenca of Thinking Financial Planners responds:

It is assumed that by saying that the will will be "proved" in SA, you mean executed (handled) by a South African executor (nominated in the will) as opposed to probate in the UK.

It is therefore assumed that capital gains tax and estate duty and any other tax such as income tax, if applicable, has already been accounted for and that there are no other assets worldwide.

The age, propensity or aversion to risk, chosen timeline of the investment, individual tax status of the beneficiary as well as the risk profile of and exact portfolio structure of the specific Stanlib and Allan Gray portfolios and a few other factors would need to be known and analysed before specific advice can be given.

That said, unit trusts as long term growth investments still make very good sense.

The investment performance of unit trusts in recent times has not been inspiring and consequently "liquidating" them at this stage may result in the "locking in" of lackluster performance, whereas holding them could hold positive prospects going forward.

Equally important is whether the beneficiary ever intends coming to or living in South Africa in the future.

If not, it may be better to liquidate and remit the funds offshore and invest offshore - if need be, back into unit trusts - offshore.

If the beneficiary ever intends to return or to live in South Africa it is important to ascertain the potential future tax position, inter alia with regards to capital gains tax.

- Jose Proenca is a financial advisor at Thinking Financial Planners. Contact him at 011 326 4364.

- Fin24.com