What if ?

jscol

My wife and I both have S&S ISA's.

I understand that if one of us dies the other one can inherit the other's ISA and the assets would remain wrapped.

If both of us were to die our funds would be left to our children. Presumably they would become unwrapped at that stage. However I assume that the funds we own could be left as funds and would not need to be sold and turned into cash prior to being inherited?

I suppose I just want the reassurance to know that if we both die during a market downturn our funds can be left as such until they (hopefully) recover in value?

Reed_Richards

I was the administrator for the estate of my late uncle. He held quite a few shares, mostly privatisation stock from the Thatcher era, and also funds. Most of these I split and divided between the beneficiaries. If I remember correctly, some of these had been wrapped as PEPs, which were the forerunners to S&S ISAs. In no case was I obliged to sell the funds or shares.

AnotherJoe

You cant control things from beyond the grave.

Either the inheritor gets the cash, thinks shares are at a low level and doesn't invest, or gets the shares sees shares are at a low level and sells for cash, keeps or replaces with alternatives. Teh fact its in cash doenst stop them reinvesting.

You cant direct they hold onto your carefully chosen funds until there's a market recovery, and the fact they receive the legacy as investments rather than cash doesnt mean they will hang on to them as the exact same investments.

If you left me VLS20 and BT for example, if I wanted to invest I'd sell them and buy something else, or if i was passed over the cash I certainly wouldnt rebuy those.

Malthusian

AnotherJoe wrote: »

You cant control things from beyond the grave.

To be fair I don't think the OP is trying to, they just want to ensure the funds aren't cashed in unnecessarily.

Even if the kids want to cash in the parents' investments and reinvest in something more appropriate for them, it still makes sense to transfer the parents' investments in-specie if possible so they can switch with only a day out of the market, instead of potentially months.

In general there should be no need to cash them in, but bear in mind that if we are talking about shares held via a platform, to transfer the shares directly to the beneficiaries, they would need to open an account with that platform. If they don't want to, or if for example the platform won't accept them because they are non-UK-resident, they may be stuck and have to take their inheritance as cash.

There would of course be nothing stopping them from using the cash to repurchase the same investments, although they would suffer time out of the market.

jscol wrote:

I understand that if one of us dies the other one can inherit the other's ISA and the assets would remain wrapped.

Actually no. The deceased's assets would become unwrapped but the widow(er) would get an extra ISA allowance equivalent to the value of their ISAs when they are closed. They could then rewrap the assets by selling them and repurchasing them using their inherited ISA allowance.

Sounds like an irrelevant distinction but it does mean you have to go through the bed and ISA process, and if the unwrapped assets rise in value after the inherited allowance is calculated, you may not be able to rewrap them all at once as they will exceed your inherited ISA allowance. (You might of course still have your usual ISA allowance to add on top.)

AnotherJoe

Malthusian wrote: »

To be fair I don't think the OP is trying to, they just want to ensure the funds aren't cashed in unnecessarily.

I suppose I just want the reassurance to know that if we both die during a market downturn our funds can be left as such until they (hopefully) recover in value?

Certainly sounds like it to me

Even if the kids want to cash in the parents' investments and reinvest in something more appropriate for them, it still makes sense to transfer the parents' investments in-specie if possible so they can switch with only a day out of the market, instead of potentially months.
If it's a market downtown that's not necessarily a bad thing. And in any case even if transferred in specie the kids might still be of a mind to sell
There would of course be nothing stopping them from using the cash to repurchase the same investments, although they would suffer time out of the market.

Or benefit from. The OPs worry was about a crash
)

Also, in specie takes longer and so may remove options from the beneficiaries.

jscol

Thanks for replies.

I realise that I can't control things from beyond the grave.

The situation I had thoughts about was whether funds would automatically be sold if they were to be inherited.

Obviously as and when kids inherit they have to do whatever they feel right. Even if its different to how I would do things.

colsten

Malthusian wrote: »

There would of course be nothing stopping them from using the cash to repurchase the same investments, although they would suffer time out of the market.

Or they would benefit from time out of the market. Or the time out of the market would make no difference.

Sea_Shell

They might just as easily cash in the investments if they inherited them in that form, regardless of the current market conditions at the time. They might need the money for other things at that point in their lives.

I wouldn't give it another thought.

Reed_Richards

jscol wrote: »

The situation I had thoughts about was whether funds would automatically be sold if they were to be inherited.

And they wouldn't. Although the decision on whether to sell or not is down to administrator(/s) of your estate so it would be worth discussing this with them now.

Malthusian

colsten wrote: »

Or they would benefit from time out of the market. Or the time out of the market would make no difference.

On average time out of the market causes a loss. The longer out of the market, the bigger the average loss, and the bigger the chance your own observed return will reflect the average. (One day out of the market is a coin flip as to whether you win or lose. Several months out of the market has a higher chance of being a loss, because over several-month-long periods a developed stockmarket goes up more often than down. Ten years out of the market is an almost guaranteed loss, assuming what you are out of is a globally diversified non-geared investment. You can draw a curve between all those points.)

Other things being equal it is therefore desirable to avoid time out of the market.

LHW99

It would be the executors of your estate (assuming you have wills in place, adminitrators if not) who have to "gather in" the assets of the deceased. Assuming you are not leaving things to the bank to sort out, one would hope the executor would discuss things with those who are to inherit, and find out their preference. A letter of wishes kept with your wills can then be considered, as well as any discussions prior to death with potential beneficiaries. However, as debts have to be settled first, in some circumstances assets could have to be sold to sort those out.