Investing in US rental property can make sound financial sense. There are a variety of properties available ranging in price and location. After researching the market in popular sunbelt states, consulting with a financial adviser to estimate the cost of investing, closing the deal and finding tenants, it is wise to consider the most common issues that arise as an owner of US income property.
Altro LLP lawyers assist clients by tailoring estate plans to suit their individual needs. One common consideration is probate. Owning US real estate, regardless of its purpose, raises the red flag of probate. Probate is the legal procedure required to transfer title of US property to children or beneficiaries upon death. In Florida, for example, probate can cost up to approximately 3% of the value of the Florida estate upon the date of death. It is also time consuming and freezes the estate.
It is also possible that a Canadian will become incapacitated while owning US rental property. Guardianship proceedings are legal proceedings in which a court may make a finding of incapacity and appoint a guardian to exercise decision-making rights that were removed. Guardianship proceedings require legal representation and can be costly.
Canadians who own assets in the US may also be subject to US estate tax. This tax is based on the fair market value of all US assets owned at the time of death. It can climb up to 40% depending on the value of the US asset and the value of the worldwide estate. Only Canadians who exceed the worldwide estate exemption are subject to US estate tax. This exemption varies with inflation and can change drastically when new laws are passed in the US.
In order to eliminate or minimize the burden of US estate tax, incapacity hearings and probate, Altro LLP lawyers may recommend that clients own US property other than in their personal names, such as in a revocable cross border trust.
However, while owning US property in a cross border trust is beneficial in many cases, if clients rent their property to tenants, they must also consider liability and creditor protection. For instance, if a tenant injures him or herself on the property, he or she can sue in the US. If a tenant’s suit is successful, clients need to protect their assets in Canada. For maximum creditor protection, our lawyers may recommend owning a US rental property in a limited partnership or cross border irrevocable trust structure.
Our lawyers also have expertise helping clients alleviate the impact of withholding taxes levied by the IRS at a rate of 30% of gross rental income. This amount can be reduced in certain circumstances. Altro LLP also assists clients by recommending and implementing ownership structures that preserve foreign tax credits, thereby avoiding double taxation.
Regardless of the structure required to suit clients’ needs, Altro LLP prides itself on implementing estate plans that protect our clients’ assets both at home and stateside.