Direct or Indirect Ownership of Property in the US
Thoughts on Liability and Estate Planning
Many of our clients have to consider their ownership of property in the US through either direct or indirect ownership, which distinguishes between individual owners and those who have rights through collective investment funds such as stocks or Private Placements.
- I. An individual direct owner, regardless of whether they own a small single-family house, an apartment, or even a shopping center or office building, must constantly consider limiting their liability risks. Many of our clients wish to keep individually owned property in their own name. If the property is owner-occupied residential property and the client lives in and is taxed in the U.S., then this can be a tax advantage. However, if this is not the case, then such private ownership can lead to significant-and unnecessary-liability risks. For example if a person is accidently injured on the property, particularly when the property is a shopping or office building, then the property owner is often liable. If the property is privately owned by a single person, then all of the property owner’s assets, including assets in Germany, may be seized. Possession of the property through a small individual U.S. company is therefore advisable.II. An indirect owner, in terms of their investment funds, stocks, etc., generally do not have any issues regarding personal liability.
Both individual direct property owners and indirect property owners of real estate in the U.S. often ask how they can pass on their property in an optimal way with regard to taxes and without incurring extensive costs.
- I. It is also important to understand that in many U.S. states, such as in Florida, the typical German handwritten Testament is ineffective and invalid. We therefore always advise our clients to minimally set up a U.S. Testament with us.
- II. In the United States, allocated items of property are processed through a local probate proceeding. Even with a U.S. Testament, this is often a tedious and expensive process. Such a process can be avoided if the property asset is placed into a trust while the property owner is still alive. This type of property holding is revocable at any time during the life of the property owner and drastically reduces the expenses of the estate.
- III. Clients also frequently ask about the possibility of transferring the ownership of the property while they are still living. While this is possible, such a transaction is subject to the U.S. Gift Tax, which corresponds to the inheritance tax that must be paid in the event of the death of the property owner. However, in this case there is some flexibility in determining the timing of the transfer, which in certain circumstances can change the basis of valuation.
In any case, we consider it very important that our clients consider potential liability, estate planning, and advanced transfer of property at the appropriate time. When it comes to the question of avoiding liability, the appropriate time is right now.
We are happy to personally sit down with you and discuss your individual situation and needs. We will work with you to develop a plan to protect and, if necessary, to transfer your U.S. assets.
Carl Christian Thier,
Attorney at Law