Buyers of New York City real estate should decide how they will hold title before signing a purchase contract. Ownership in an individual name, jointly with another person, through a limited liability company, through a trust or through another entity can produce different legal, tax, estate-planning, financing and disclosure consequences. The available choices may also depend on the property type, lender requirements and condominium or cooperative rules.
There is no single ownership structure that is best for every buyer. The appropriate choice depends on the intended use of the property, family and succession objectives, need for privacy, financing plans and tax residency. Out-of-state and international purchasers may face additional home-state or home-country tax and estate-planning considerations. These issues should be reviewed with qualified legal and tax advisers before the contract identifies the purchaser.
Most Buyers Use a Straightforward Ownership Structure
For many people purchasing a New York City home for their own use, the ownership decision is relatively straightforward. The property is commonly acquired in the buyer’s individual name or jointly with a spouse, family member or other co-purchaser.
LLCs, trusts, corporations and foreign entities are more likely to be considered when a purchase involves substantial investment assets, multiple owners, privacy concerns, liability planning, estate planning, international tax issues or a broader family-wealth structure. The alternatives discussed below do not mean that every buyer needs a complicated ownership arrangement. They are included to help purchasers recognize when additional legal or tax planning may be appropriate.
Ownership Structures in New York City New Developments
New-development condominiums generally impose few special ownership restrictions based solely on a purchaser’s citizenship or residency. Sponsors commonly sell to local, out-of-state and international purchasers and are usually familiar with ownership in an individual name, jointly with another person, through an LLC, through a trust or through another entity. This can provide greater ownership flexibility than is available in many cooperative buildings.
Every purchaser must nevertheless satisfy applicable identification, beneficial-ownership, anti-money-laundering and source-of-funds requirements. International purchasers and buyers using entities may be asked for additional documentation. If financing is involved, the lender may impose requirements beyond those of the condominium or sponsor, including restrictions on entity ownership, personal guarantees or documentation concerning income and assets. The proposed ownership structure should therefore be approved by the buyer’s attorney, tax adviser and lender before the contract is signed.
Why the Ownership Structure Matters
The individual or entity identified as the owner can affect income and estate taxation, liability protection, financing eligibility, privacy, succession planning and the documentation required at closing. For real property, ownership is reflected in the deed. For a cooperative apartment, ownership is reflected in the shares and proprietary lease. Changing the ownership structure after the purchase may involve additional legal work, transfer taxes, lender consent, condominium approval or cooperative approval.
The structure should therefore be selected before the contract is signed. If an entity or trust will acquire the property, the contract should generally identify that purchaser—or expressly permit an individual purchaser to assign the contract to it—subject to the seller’s or sponsor’s approval, applicable building requirements and the contract terms.
Ownership in an Individual Name
Holding property in the purchaser’s individual name is often the simplest ownership structure. It generally requires fewer organizational documents, may make financing easier and avoids the cost of forming and maintaining a separate entity. It may also make certain homeowner tax benefits easier to claim when the property will be used as a principal residence.
Simplicity does not eliminate liability, privacy, tax or estate-planning concerns. Domestic buyers should consider succession planning, creditor exposure and the consequences of owning property individually rather than jointly or through a trust or entity. A non-U.S. owner may also face U.S. income-tax filing obligations, withholding rules upon sale and potential U.S. estate-tax exposure. The consequences depend on the owner’s citizenship, residence, intended use, treaty position and other circumstances, so individual ownership should be selected only after appropriate legal and tax review.
Ownership Through a Limited Liability Company
A limited liability company may provide separation between the property and the purchaser’s other assets, facilitate shared ownership and offer a degree of privacy. When an LLC appears on the deed instead of its members, the names of the individual beneficial owners generally do not appear in the property’s public ownership record. An LLC may also simplify certain transfers of ownership interests or succession arrangements.
That privacy is limited and should not be confused with complete anonymity. Public business-entity records may disclose the LLC’s registered agent, service address and filing history. Banks, lenders, title insurers, sponsors, cooperative boards and government authorities may also require identification of the individuals who ultimately own or control the LLC. Federal and New York beneficial-ownership reporting requirements currently depend in part on where the LLC was formed and whether it is registered to conduct business in the United States, and those requirements may change.
An LLC does not automatically eliminate tax, estate-tax, liability or disclosure obligations. Its treatment depends on how and where it is organized, who owns it and its U.S. tax classification. Some lenders will not finance an LLC purchase, while others may require personal guarantees or that ownership initially be taken individually and transferred later. Condominium documents may restrict entity ownership, and many cooperative buildings do not permit ownership through an LLC. The proposed structure should be reviewed before the contract is signed.
Ownership Through a Trust
A trust may be useful for estate planning, succession, management of the property or continuity of ownership. If the property is properly transferred to and held by the trust, the trust may allow ownership or control to pass to the successor trustee or beneficiaries without a probate proceeding. Depending on its terms and governing law, a trust can identify who controls the property during the owner’s lifetime and who benefits from it afterward. It may also provide a degree of privacy, subject to the same limitations and disclosure requirements discussed above for LLC ownership.
Trust structures vary substantially, and not every trust produces the same probate, tax or asset-protection consequences. A trust created under foreign law may not receive the same U.S. tax treatment as a domestic trust. Lenders, title insurers, condominium boards, cooperative boards and sponsors may require the trust agreement, trustee authorizations and information concerning settlors, trustees and beneficiaries. Domestic buyers should coordinate the trust with their estate plan, while international buyers should obtain advice concerning both U.S. and home-country law. The proposed trust should be reviewed and approved before it is named as the purchaser.
Corporations and Other Entities
A buyer may consider purchasing through a corporation or another entity when the property is part of a business, investment, liability-planning or family-wealth structure. Corporate ownership is less common for a personal residence because it can create additional tax, financing, reporting and administrative burdens.
The available options depend partly on the property type. Sponsors of new-development condominiums commonly permit purchases through LLCs, trusts and corporations because they seek to sell the project to the broadest qualified group of purchasers and generally avoid unnecessary ownership restrictions. The offering plan and purchase contract nevertheless control in each development. Resale condominiums may also permit entity ownership, subject to the condominium documents. Many cooperative buildings restrict or prohibit ownership by corporations and other entities. A townhouse is privately owned and generally is not subject to condominium or cooperative ownership restrictions.
Any corporation or other entity purchasing property may need to provide formation and governing documents, ownership information, authorizing resolutions and evidence that the person signing for the entity has authority to do so. An entity formed outside New York may also need a certificate of good standing and authority to conduct business in the state, depending on its activities. An entity formed outside the United States may additionally need certified translations or apostilled documents.
The legal and tax consequences vary according to the type and place of formation of the entity, the purchaser’s tax residency, the intended use of the property and whether financing is required. The proposed structure should be reviewed by qualified legal and tax advisers before the entity is identified in the purchase contract.
Purchasing With Family Members or Other Co-Owners
When more than one individual purchases New York City real estate, the ownership documents should specify how their interests will be held. For a condominium or townhouse, the form of ownership appears in the deed. For a cooperative apartment, it applies to the shares and proprietary lease. Common forms include tenancy in common, joint tenancy with right of survivorship and, for married spouses, tenancy by the entirety.
The selected form affects each owner’s interest, transfer rights, creditor exposure and what happens to the ownership interest when an owner dies. The appropriate choice may also depend on the owners’ marital status, estate plans, tax residency and whether they contribute equal or unequal amounts.
Co-owners should consider a written agreement addressing their respective contributions, payment of expenses, use of the property, decision-making, financing, rental rights, sale rights and what happens if one owner dies, becomes incapacitated or wishes to leave the arrangement. Family or personal relationships do not eliminate the need for clear documentation, particularly when the owners contribute unequal amounts, use the property differently or reside in different states or countries.
Tax and Estate-Planning Considerations
The ownership decision should be coordinated with income-tax, estate-tax and succession planning. New York residents and out-of-state buyers should consider federal, state and local tax consequences, the intended use of the property, potential rental income, the treatment of expenses and the transfer of the property at death.
International buyers may face additional issues, including U.S. taxation of rental income, withholding upon sale, possible U.S. estate-tax exposure, reporting obligations and the interaction between U.S. law and the laws of their home country.
A structure that provides an advantage in one area may create additional tax, financing, reporting or administrative costs in another. The appropriate analysis is specific to the purchaser and should be completed by qualified legal and tax advisers—and, for an international buyer, appropriate home-country advisers—before the purchase contract identifies the buyer.
Before Signing the Purchase Contract
Before signing, the purchaser should confirm the individual, co-owners, trust or entity that will acquire the property. The purchaser should obtain any required entity or trust documents, verify that the lender will accept the proposed structure and determine whether the contract must permit an assignment or substitution of the purchaser. Addressing these matters afterward can delay closing or require an amendment approved by the seller or sponsor.
Eschewal New York helps local, out-of-state and international purchasers coordinate the ownership decision with their attorneys, tax advisers, lenders and other transaction professionals so that the contract, financing and closing documents reflect the selected structure. Legal and tax advice should be provided by the purchaser’s retained professionals based on the purchaser’s individual circumstances.
For additional guidance, read Buying New York City Real Estate Remotely and Financing a New York City Real Estate Purchase.
This guide provides general information and is not legal, tax or financial advice. Many purchases are comparatively straightforward, but the appropriate advice depends on the buyer, property and transaction. Buyers should consult the appropriate professionals when their circumstances require specialized planning.