How to Inherit a Mutual / Index Fund And Pay Less Taxes

What is an investment fund? How would it benefit me if I were one of its heirs? I will explain this and other questions in detail in this article.

An investment fund is a capital that is made up of contributions (money) from one or more people, that is, by shares. That is why its owners are called participants.

This fund is managed by an administration (investor broker) and by a depository company that monitors the cash and its documentation, and performs custody and guarantee duties for the investments.

These investment funds are characterized by having a series of tax benefits when inheriting, such as not having to pay taxes to the Treasury in the event of a transfer.

Find out what you need to do to inherit an investment fund , paying minimal taxes!

Table of Contents

Who inherits an investment fund after the death of the owner?

Investment funds are incorporated into the so-called inherited estate and when the owner dies, they are transferable like any other financial transaction.

After making the appropriate arrangements, the ownership of the shares can be changed and the successor or successors become the immediate owners of the shares in the inherited fund.

The successors may, if they so wish, transfer their shares to another fund, keep them as they inherited them or request their reimbursement .

In the event that there is more than one successor, the shares will be divided among them and each successor may decide what is most convenient for him/her.

However, if the deceased has not left a will, the Spanish Civil Code establishes that his heirs may be:

Their children or descendants.

Their parents or ancestors.

Your husband or wife, who may own the fund in usufruct (that is, he or she will enjoy said fund but without being the owner);

And finally, being related according to their degree of consanguinity with the deceased.

The Shareholder who decides to withdraw the accumulated profits may do so at any time by sending a request to the Management Company. He may acquire the redemption of all or part of his shares.

If you wish to withdraw your profits, then the Fund Management Company will have to return a number of Units with the same value as the accumulated profits.

How to inherit an investment fund step by step

When a person who owns an investment fund has died, the law establishes who will inherit the investment fund, which persons must be written in his or her will or as provided for in the Civil Code.

To begin this process, the heir(s) will require a certificate of the balance of the investment fund from the managing entity; this document will be used to settle the Inheritance and Gift Tax.

Although investment funds have the advantage that successors can access their shares without having to pay this tax.

This can be achieved by submitting a request to the Treasury for approval and receiving liquidity from the same fund to, for example, pay said tax.

The managing entity will require the successors to contribute to the acceptance of the inheritance of the investment fund and the inheritance and gift tax , which once the corresponding procedure has been carried out, does not need to be settled.

Once this has been done, the managing entity will assign the fund's shares and proceed to change the owner(s).

To calculate the net asset price of the shares, the date of the holders death will be taken into account. This is how an investment fund can be inherited.

How is the inheritance of an investment fund distributed?

Once the inheritance has been accepted and the inheritance tax has been paid, the managing entity will proceed to open a new investment fund that will be similar to that of the deceased owner.

Next, all the shares held by the deceased will be transferred, but if there are several successors, the agency will open a fund for each of them, distributing these in accordance with the provisions of the inheritance.

This is how an investment fund will be distributed in an inheritance.

When can money be collected from an investment fund?

In the event that you wish to request a redemption (put up for sale), the shares inherited from a fund must be taken into account together with their net asset value.

That is, the consequence of dividing the market value of the fund's assets by the number of shares circulating on the stock market.

As the stock market, the prices of shares and investments fluctuate, the price of the shares also fluctuates and is calculated daily by the management entity.

Therefore, when the fund is reimbursed, the net asset value of the day of the request or the day after the sale will be taken into account, and the money can be collected within a maximum period of three working days.

To be more practical with the collection of the fund, it is recommended to have a current account in the same agency where the investment fund was, since the money will be deposited with a bank transfer.

Please note that the National Securities Market Commission (CNMV) requires that there is no need to charge you any commission for opening and maintaining a bank account.

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How investment funds are taxed in inheritance tax

Investment funds have the advantage of having several tax benefits compared to other financial operations, such as pension plans, for example:

The profits generated are taxed by the Treasury and only those obtained at the time of requesting the reimbursement of the shares are taxed, while the funds are exempt from tax.

These profits are paid to the Treasury only on the so-called savings tax base, unlike what happens in pension plans that pay on the general tax base, having to pay more to the Treasury.

The accumulated profits of the investment fund also have the advantage of having a multiplying effect called compound interest, increasing the profits of the fund. This is how the inheritance of an investment fund is taxed.

What is the capital gain of the dead?

The capital gain generated by the deceased holder is the difference in the net asset value from the day on which he or she subscribed to the fund's shares until the day on which the fund's redemption is requested.

For this reason, the so-called capital gains of the dead stands out for being a tax rule, in which it is exceeded having to pay taxes to the Treasury for the profits generated by an inherited investment fund.

In this way, the fund can be accessed without having to worry about paying taxes on the profits from the shares.

How to pay less taxes on an inherited investment fund

The rule of the deceased's capital gain is undoubtedly a great advantage when receiving an inheritance from an investment fund.

In addition, it will help you pay less taxes if you follow these recommendations:

You can transfer funds from one investment fund to another without paying a single euro in order to continue investing.

Seek advice from an expert in inheritances, such as a financial coach, who can also help you, as the fund owner, to make a better will to reduce tax payments.

Prepare a good tax plan. This can be done at the time of making the will, reviewing it periodically to see if there are changes in general regulations or in the stock market.

Recommend that the testator make donations in order to take advantage of tax benefits such as bonuses and reductions.

Moving to another Autonomous Community. This recommendation should be carried out with the help of a tax advisor, as you can save money by moving from one community to another.

Hire financial products with lower taxes. There are many tools that can help you pay less taxes on inheritances, such as life insurance.

In what cases might you have problems with other family members in the event of inheritance of a fund after death?

To understand what happens when the owner of an investment fund dies and has not left a will, although the Law stipulates who the heirs would be in these cases, it can become complicated if there are no descendants, ascendants, or spouse.

The Civil Code only stipulates that the inheritance will go to the collateral family, but if there is a relative who is more distantly related, such as a brother on the mother's or father's side, or a child not recognized by the title holder. In these cases, it is best to seek the advice of a lawyer.

How much does the Treasury take from an investment fund?

As I mentioned before, the advantages of having an investment fund are that you only pay taxes to the Treasury when you ask the Management Company to reimburse the shares and you obtain profits or losses at the time of sale.

In any case, it is advisable to know how much tax you have to pay on these profits if you are going to request reimbursement of the fund, which is usually done at the following intervals: