351 Exchange

[medved]

One part of our portfolio consists of an SMA containing approximately 85 individual stocks. There is a fair bit of embedded capital gain and no reasonably foreseeable tax loss harvesting opportunities. We have contributed some of this to our Donor Advised Fund, but I am not sure what to do with the rest of it. Of course, one option is to just let it be -- rebalancing occasionally to reduce tracking error to our target index, to the extent we can tolerate the capital gain -- and then just wait until we die and our kids get the step up in basis. But I am considering the alternative of a 351 exchange into an ETF. Has anyone here done this -- or seriously considered it? If so, I would be interested in your thoughts about the advantages/disadvantages, and which sponsor you used. (I am aware of the diversification requirements, and our SMA does satisfy those requirements). Thanks for any thoughts.

 

[Koolau]

From what little I know of SMAs (I know VERY little) it seems to me that they might add more complexity and tax issues. IF there is a way to 351 them into an ETF I would be tempted to do so. Just sharing my ignorance here, but SMAs don't sound like something I would ever be interested in using for my investments BUT YMMV.