Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I am a foreign national. Are there any U.S. tax implications if I give my U.S. real estate to my children or set up a trust for their benefit? What if I leave it to them when I die?
A: The government will impose a gift or estate tax on any lifetime gift or bequest of U.S. real estate. Foreign nationals, said Eric Dorsch, a New York attorney with Kozusko Harris Duncan, are subject to U.S. gift or estate taxes on the transfer of any assets in the United States, including U.S. real estate. The top rate for these taxes in 2016 was 40%. For this reason, he said, many international investors consider owning U.S. real estate through a trust or a foreign company.
More:Should I Purchase a New York Condo Through a Non-U.S. Corporation?
Edward Mermelstein, managing partner of the Manhattan law firm of Rheem, Bell & Mermelstein, noted that the U.S. estate tax applies only to a non-resident alien’s U.S. property, not to property located elsewhere in the world. If the bulk of a foreign individual’s wealth is located in the U.S., he said, it might be a good idea from an estate tax planning perspective to consider seeking U.S. resident status.
Even better, he said, creating a U.S. entity and using that corporation to invest in U.S. real estate through a foreign corporation, or investing through a foreign irrevocable trust, are usually better for estate tax purposes, meaning they will not trigger estate taxes.
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