Thomas C. Roberge & Company

CONSIDERATIONS FOR FOREIGN OWNERS

TITLING PROPERTY IN

CHILDREN’S NAMES

December 16, 2005

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

We frequently have questions about the ramifications of transferring or titling of U.S. real estate by foreign owners in their children’s names. This issue presents a myriad of tax and non-tax considerations that can potentially have serious consequences to the parents.

First, the quitclaiming of U.S. real estate by a foreign individual to his or her child is a taxable gift for U.S. gift tax purposes. As such, the nonresident donor only receives an annual gift tax exclusion of $12,000 in 2006 ($11,000 in 2005) per donee against the fair market value of the property transferred. The nonresident alien donor does not receive the same lifetime $1 million exemption against taxable gifts that a U.S. domiciliary receives.

The gift tax results can be disastrous. For example, assume that John Chaplow, a U.S. nonresident, gifts property to his daughter in 2006 that cost him $250,000 in 1994 and is worth $1 million at the date of the gift. The gift tax liability is $341,120. There is transferee liability to John’s daughter if he does not pay the tax. In other words, the tax does not disappear.

There are strategies and planning techniques for minimizing this tax. However, they cannot be generalized since the facts and surrounding circumstances are usually unique in each situation. We do a significant amount of planning for these transactions in our practice.

Finally, here is the real wild card in transferring property to a child. Even though the gift tax consequences are potentially disastrous, it is even worse if the child to whom the property is transferred gets married and the marriage fails. You can wind up with a situation where family assets can wind up being owned (partially or wholly) by an unwanted ex son or ex daughter in law. Pre-nuptial agreements may or may not work.

In summary, transferring U.S. assets by foreign parents to their children can be fraught with pitfalls if not fully considered and planned for. Feel free to contact us if you would like to consider such transfer planning.

Internal Revenue Service Circular 230 Disclosure – You are hereby advised that any tax advice contained in this newsletter is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or to support the marketing of any tax transactions or matters addressed herein.