How Foreign Buyers Should Structure Ownership of a New York City Condo
Foreign purchasers of New York City condominiums should decide how they will hold title before signing a purchase contract. Ownership in an individual name, through a limited liability company, through a trust or through another entity can produce different legal, tax, estate-planning, financing and disclosure consequences.
There is no single structure that is best for every foreign buyer. The appropriate choice depends upon the purchaser’s intended use of the property, family and succession objectives, need for privacy, financing plans, home-country laws and U.S. tax considerations. These issues should be reviewed with qualified legal and tax advisers before the contract identifies the purchaser.
Foreign Ownership in New York City New Developments
In New York City new developments, there are generally few special condominium requirements that apply solely because a purchaser is foreign or intends to take title through an entity. Sponsors commonly sell to international purchasers and are usually familiar with individual, LLC, trust and other ownership structures.
The purchaser must nevertheless satisfy the sponsor’s identification, beneficial-ownership, anti-money-laundering and source-of-funds requirements. If financing is involved, the lender may impose more restrictive requirements than the condominium or sponsor, including limits on entity ownership, personal guarantees and additional documentation concerning foreign income and assets. The proposed ownership structure should therefore be cleared with the lender before the contract is signed.
Why the Ownership Structure Matters
The name or entity appearing on the deed can affect income and estate taxation, liability protection, financing eligibility, privacy, succession planning and the documentation required at closing. Changing the ownership structure after the purchase may involve additional legal work, transfer taxes, lender consent or condominium approval.
The structure should therefore be selected before the contract is signed. If an entity will purchase the property, the contract should generally identify that entity—or expressly permit the individual purchaser to assign the contract to it—subject to the sponsor’s or seller’s approval and the contract terms.
Ownership in an Individual Name
Taking title 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.
Simplicity does not eliminate tax or estate-planning concerns. A non-U.S. owner may face U.S. income-tax filing obligations, withholding rules upon sale and potential U.S. estate-tax exposure. The consequences depend upon the owner’s citizenship, residence, treaty position and other circumstances, so individual ownership should not be selected without appropriate tax advice.
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 in public records. It can also simplify certain transfers of beneficial interests or succession arrangements.
An LLC does not automatically eliminate tax, estate-tax or disclosure obligations. Its treatment depends upon how it is organized, where it is formed, who owns it and whether it elects a particular U.S. tax classification. Some lenders will not finance an LLC purchase, while others may require personal guarantees or that title initially be taken individually and transferred later. The condominium’s governing documents and the purchase contract may also restrict entity ownership.
Ownership Through a Trust
A trust may be useful for estate planning, succession, management of the property or continuity of ownership. Depending upon its terms and governing law, a trust can identify who controls the property during the owner’s lifetime and who benefits from it afterward.
Trust structures vary substantially, and a trust created under foreign law may not receive the same U.S. tax treatment as a domestic trust. Lenders, title insurers and condominium boards may require the trust agreement, trustee authorizations and information concerning settlors and beneficiaries. U.S. and home-country advisers should review the proposed trust before it is named as purchaser.
Corporations and Foreign Entities
A corporation or an entity formed outside the United States may be appropriate in limited circumstances, particularly when the property forms part of a broader business, investment or family-wealth structure. These arrangements can also introduce additional tax, reporting, financing and administrative complexity.
A foreign entity may need to provide certified formation documents, certificates of good standing, ownership information, authorizing resolutions and translated or apostilled records. It may also need authority to conduct business in New York, depending upon its activities. The tax treatment of corporate ownership can differ materially from individual or pass-through ownership and requires specialized advice.
Purchasing With Family Members or Other Co-Owners
When more than one person purchases the condominium, the deed must specify how they hold title. Common forms include joint tenancy with right of survivorship and tenancy in common. The distinction affects each owner’s share, transfer rights and what happens to an owner’s interest at death.
Co-owners should also consider a written agreement addressing contributions, expenses, use of the apartment, decision-making, sale rights and what occurs if one owner wishes to exit. Family relationships do not eliminate the need for clear documentation, particularly when the owners contribute unequal amounts or reside in different countries.
Tax and Estate-Planning Considerations
The ownership decision should be coordinated with U.S. income-tax, estate-tax and succession planning. Foreign buyers may need to consider taxation of rental income, withholding upon sale, 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 added cost or complexity in another. The appropriate analysis is purchaser-specific and should be completed by qualified U.S. and home-country advisers before the contract and closing documents are finalized.
Before Signing the Purchase Contract
Before signing, the purchaser should confirm the intended owner, obtain any required entity or trust documents, verify that the lender will accept the structure and determine whether the contract must include assignment or substitution rights. Addressing these matters afterward can delay closing or require amendments requiring the seller’s or sponsor’s consent.
Eschewal New York helps foreign purchasers coordinate the ownership decision with their attorneys, tax advisers, lenders, title professionals and the new-development sponsor 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 upon the purchaser’s individual circumstances.
For a broader overview, read What Foreign Buyers Should Know Before Buying a New York City Condo.. For mortgage considerations, see Financing a New York City Condo as a Foreign Buyer.