FIL/MIL created UTMAs for their grandkids. Now that many are at majority age, the proceeds are moving to the grandkids. Upon evaluation, some of the investments are in American Funds, which have a 0.6+% expense ratio. Some of these funds fairly closely track indices that have ETFs, with much lower expenses - like 0.03%. In these cases, it seems prudent to move the funds into lower cost alternatives. However, they also inherit the original cost basis, so will have to pay taxes on the gains.
By my calculations, an fund with a cost basis of 50% of its present value will incur a reduction of 10% of value to sell. Gains of 50% of value * 20% cap gains tax = 10% taxes paid after sale. With the stated expense ratio deltas and similar returns, the crossover point will be 15 years.
A fund with a cost basis of 75% of its present value will incur a reduction of 5% of value to sell. That crossover will be in year 8.
Is there a way to do this w/o incurring the tax? I suspect the answer is "no."
I am compelled to suggest the beneficiaries move out of these funds. 1 - they'll live far longer than the crossover points above. 2 - they might be tempted to purchase more of the American funds if they are sitting in the account. They'll get lower returns and will likely not have the assets to acquire more at no load (which is how they were originally acquired). Thoughts?