If you are a non-resident of the United States supporting your child with income from a U.S. investment property, you need to start estate planning now. Owning real estate in California’ hot market can be a great investment strategy. But U.S. estate and gift taxes could impose an onerous burden on your family if you do not plan ahead.
Are the Taxes You Could Owe Really that Expensive?
Yes. U.S. estate and gift tax laws are different than you may be familiar with from other countries. Here, the estates of non-residents (those with no green card) pay an expensive estate tax on U.S. property. The exemption amount before you start paying estate taxes is only $60,000 for non-resident aliens. That means the $1.5 million property you purchase as an investment could trigger up to $495,000 in estate tax.
Given the Tax Risk, How Can You Support Your Child with Investment Property?
Many people living outside the United States want to purchase real estate here, either as an investment to give to their children later or as a place for their child to live while studying here. The key to avoiding the exorbitant taxes described above is planning with an attorney who can tailor legal documents to your unique situation.
You may have heard that you should set up a revocable trust or an LLC to hold the property you purchase. You may have tried filling out legal forms that you downloaded from the Internet, or purchasing a prepaid legal plan. This is not a substitute for real legal advice about how to own the property, avoid high tax bills, and benefit your child.
A lawyer can advise you about how to own the property, which might be by individual ownership or by setting up:
- A pass-through entity (limited liability company or partnership);
- A U.S. corporation;
- A foreign corporation;
- A foreign trust; or
- A real estate holding company.
The choice of entity should take into account possible income tax liability, as well as estate and gift taxes. It should also take into account what you want to do with the property in the future.
Want to purchase an investment property in the U.S. as a non-resident? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.