By Stanley Rose

Who should take title (be the owner) and its tax/legal consequences

1. If you wish to avoid U.S. inheritance (estate) tax, and (1) are either too old or have health problems which will not enable you to purchase term life insurance to cover your inhertiance (estate) tax risk, or (2) desire anonymity in respect of your U.S. assets, then the only viable options area:

A)                          Foreign Company                                            Advantages:
                Formed in British Virgin Islands, Panama                      1) Anonymity
                etc. with nominee officers, directors,                              2) Avoid U.S. estate tax
                shareholders if desirable.                                               Disadvantages:
                                         |                                                                    1) Tax rate on sale of real estate could
                                         |                                                                        40-55% on gain
                                                                                                             2) Set up costs $2000-3000 (approximate)
                                 Real Estate                                                           3) Yearly fees $1000 (approximate)
                                                                                                             4) Lack of flexibility if the company sells its
                                                                                                                  real estate and wishes to purchase 
                                                                                                                  another property, this results in the 
                                                                                                                  problem of the tax on gain esculating
                                                                                                                  from 40% (approximate) to 55% or
                                                                                                                  higher (approximate)

B)                         Foreign Company                                               Advantages:
               Formed in British Virgin Islands, Panama                        1) Anonymity
               etc. with nominee officers, directors                                 2) Avoids U.S. estate taxes
               shareholders if desirable.                                                 Disadvantages:
                                        |                                                                    1) Set up costs $2000-3000 (approximate)
                                        |                                                                    2) Yearly fee $1000 (approximate)
                                 Non- Real  Estate                                                  Note: The foreign company is not subject to
                                                                                                                     U.S. jurisdiction and files no U. S. tax
                                                                                                                      returns.

                               Florida Company                                              Advantages:
                                         |                                                                   1) Anonymity preserved by having a 
                                         |                                                                       CPA/Attorney serve as officer/director
                                  Real Estate                                                           and representative for legal process.
                                                                                                             2) Reinvestment flexibility maintained, but
                                                                                                                 high tax rate of at least 40% (approximate)
                                                                                                                 on the gain still apply.
                                                                                                          Disadvantages:
                                                                                                             1) Tax rate on gain (40% approximate),
                                                                                                                  even though the additional 15% in (A) can
                                                                                                                  be avoided.
                                                                                                             2) Set up costs $1100 (approximate)
                                                                                                             3) Yearly costs (Florida fee/tax return
                                                                                                                  [required] $1400 (approximate)

Certain set up costs and yearly costs in (A) and (B) may be higher or lower depending on the advisors you use (attorneys/accountants/foreign company/management company). The Florida fees are not fixed by statue.

2. If you are a single, married, unmarried, but joint investor and do not fit in 1. above, then the choices are friendlier from an income tax and carrying cost standpoint, and any inhertiance (estate) tax risks may be hedged by term life insurance to cover such risks, which might not even be an issue depending upon whether you have a favorable inheritance (estate) tax treaty between your home country and the U.S. (Germany - very, very favorable; Canada, Italy and Switzerland - moderately favorable depending on your individual situation; Austria, U.K., France and most other treaties - little or no help at all to reduce your tax risks (approximately $60,000 inheritance (estate) tax on first $250,000 of assets).

A) Simple Florida Revocable Trust: this is the most favorable approach: 

     Advantages
     1) Easy to set up - set up fee of $1500 (approximate)
     2) Taxation on capital gain (holding period greater than 12 months): 15%. The trust is not a legal entity as such, and any income it earns is not taxed to the trust, but to the beneficiaries named in the trust document at the low tax rates (for example, the 15% capital gain tax rate applicable to a natural person). There are no yearly fees, as with a company.

    Major Advantages: The trusts document can name the life beneficiaries (owners) as well as who succeeds them on death, so as to avoid probate of a will in the United States (an attorney can try, by statute, try to collect a 3% probate fee; with a trust, the surviving owner merely goes to the county real estate registry with a certified copy of the trust (or the original) and the death certificate of the original owner and transfers the property. They may need an attorney to prepare a simple warranty deed to transfer the real estate, but a reasonable fee for such is $350-$500.

    Assume                                     House $500,000
                Probate Fee:                              $  15,000
                Trust:                                         $    1,000
                                                                 $350-$550 real estate transfer fee
    Compare the cost of $1,500 now to save $15,000 later.

B) Joint Ownership

    Husband and Wife                       Tenants by the Entirety
    Two or more unmarried owners   Joint Tenants, Right of Survivorship
                                             Note: The notation Right of Survivorship must appear on the deed to insure
                                                       automatic transfer on first death.

Joint ownership does not have any set up fees other than those related to a normal real estate closing.

    Advantages:
      Same as above, but:        

    Disadvantages:
    Probate required when last person on the title dies; the parties will need a Florida will or a valid legal will from their
    home country (a handwritten will executed without the formalities of Florida law is invalid - needs two witnesses  
    unrelated to the person making the will, and everyone must sign at the same time before a notary). 

NOTE: The tax consequences in all these examples may be postponed, but not avoided, by a tax free exchange (a 1031 exchange), but these exchanges are normally useful/desirable only for long term investors who do not anticipate experiencing cash flow problems.

There are other possible alternates, especially if one wishes to also rent the real estate they purchase, and limit their liability - for example, a Florida limited liability company, or a Florida limitetd partnership, both of which afford the same advantages and disadvantages as individual ownership, but do not achieve the probate avoidance advantage ofa simple Florida Revocable Trust. There are other Florida (sales tax, tourist tax, tangible property tax) and Federal income tax issues to be discussed with qualified advisors in respect to rental income.

 
Stanley F. Rose is a foreign investment attorney in Florida who also coordinates immigration related matters with the law firm of Wayne M. Levine. He specializes in income, estate and gift taxation for resident and non-resident aliens investing in the U.S. and in foreign trade and transactions. He is FLorida Board Certified for International Law and is a Florida Civil Law Notary. He speaks English, Spanish, Portuguese, German and French.

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