Why Do We Need To Review Your Assets In Creating Your Estate Plan?
By: D. "Rep" DeLoach III, Esq.
When new or returning clients come into our office to create their estate plan, such as through wills, trusts or other legal instruments, we typically ask them to bring a list of all their assets. We do this for a number of reasons as we need to know if your estate is taxable, whether you have a large or small estate that will provide for long-term care and other contingencies as necessary, and we need to know the types of assets you own. All of these may drastically affect our approach to planning to meet your desires and how we implement your plan.
To help tailor an effective estate plan for your specific situation, consider the following general rules regarding distribution of your assets:
- Assets in your own, individual name are distributed according to your last will and testament. These could, potentially, include land, stocks, bonds, bank accounts, etc. Without proper planning these assets are distributed through the probate process after your death.
- Assets that are jointly held are generally distributed to the survivor/co-owner. Examples of these include land and a residence owned jointly by a husband and wife. Upon your death, ownership simply transfers to the survivor and are not subject to the probate process.
- Assets with beneficiary designations, such as life insurance policies, IRAs, 401Ks and annuities are distributed to the named beneficiary, regardless of the will's contents.
- Assets that are in your trust remain in or are distributed according to the trust, outside of the probate process.
With these four rules, you will note that your last will and testament may actually cover few of your assets. It is very common for people to include joint owners on land, bank accounts, etc., and have few assets in their own, individual name. This process, while it limits those assets that may be subject to the probate process, does carry some risk/reward implications which should be carefully reviewed with an attorney.
In conclusion, please make sure that you know how all of your assets are titled and how they would likely be distributed upon your death and not just the assets that are subject to your last will and testament. This can be a complicated subject and we are more than happy to sit down, review your assets and make sure your wishes are followed.
Collection Of Association Assessments
Many of us live in condominiums or subdivisions governed by a set of deed restrictions. Unfortunately, many of our neighbors have experienced financial difficulties during the Great Recession. As a result, they have not been able to pay either their mortgage or the assessments to the association.
By: Peter T. Hofstra, Esq.
I am of the opinion that an association should vigorously pursue the collection of delinquent assessments owed to it. Said enforcement involves the recording of a claim of lien and the foreclosure of said lien. When the association takes title to the property as a result of the foreclosure of its lien, the association takes title subject to the outstanding first mortgage. However, the association may be in a position to lease the subject property and recover all or a portion of its outstanding assessments, court costs, and attorney's fees prior to the holder of the first mortgage concluding the foreclosure of its mortgage.
When a first mortgage holder forecloses its mortgage and acquires title to the subject property, in most cases it is liable to the association for only a portion of the outstanding assessments due the association. The mortgage holder owes the association the lesser of one percent (1.0%) of the original principal mortgage balance or twelve (12) months of assessments coming due prior to the acquisition of title by the mortgage holder. Subsequent to its acquisition of title, the mortgage holder is responsible for all assessments due the association.
Any delinquent assessments not collected by the association are ultimately paid by all of the remaining members of the association. That is why it is imperative that you request your Board of Directors to engage competent legal counsel to advise the Board relative to the collection of its delinquent assessments.
Foreign Investment in Florida Real Estate
By: Dennis R. DeLoach, Jr.
Advantages and Disadvantages of Ownership Alternatives
As stated in earlier articles of this series, a recent study by Florida Realtors indicated that 19 percent of the total residential sales volume was by foreign investors over the past year. As such, it becomes prudent to evaluate the methods by which foreign investors may own such real estate in Florida and the advantages and disadvantages of each ownership alternative. Through this series of articles, we will continue evaluating the alternative forms of ownership for foreign investors including direct ownership by a foreign individual (Discussed in Part I), investment in real estate through a limited liability company (Discussed in Part II), investment in real estate through a foreign corporation (Discussed herein), and investment in real estate through a living trust (To be discussed in the future).
Ownership of Florida Real Estate through a Foreign Corporation:
A foreign corporation is often the investment vehicle of choice for a foreign investor that is investing significant amounts of money in Florida residential real estate. By purchasing Florida real estate directly through a Foreign Corporation (i.e., a corporation that is registered to do business outside of the United States), estate taxes may be avoided at the time of the foreign investor's demise. This is due to the fact that stock of the foreign company based outside the United States is not deemed to be a "U.S. situs asset" for estate and gift tax purposes.
Consequences of Ownership of Florida Real Estate through a Foreign Corporation:
While there are benefits to direct investment in Florida real estate via a foreign corporation, this type of investment structure may not always be the best option. This is due to the fact that foreign corporations directly investing in Florida real estate are subject to numerous tax implications. For instance, the foreign corporation's taxable sale of the Florida real estate is subject to the Foreign Investment in Real Property Tax Act (FIRPTA). The FIRPTA, embodied in Section 897 of the Internal Revenue Code, applies to dispositions of U.S. real property interests made by nonresident alien individuals and foreign corporations. A "nonresident alien" is defined in Section 7701(b)(1)(B) as an individual who is neither a U.S. citizen nor a U.S. resident. Furthermore, since the real estate would be held by a foreign corporation, it would not qualify for a "step-up" in basis to fair market value at the time of the foreign investor's death.
Ownership of Florida Real Estate through a Foreign Corporation via a Subsidiary:
Although some foreign investors may prefer to directly purchase Florida real estate through a foreign corporation, the various tax implications may create the need for most foreign investors purchasing less significantly priced residential property to look to other alternatives. One possible alternative to directly purchasing Florida real estate by a foreign corporation is the creation of a Florida based subsidiary. By creating a Florida based subsidiary corporation and purchasing Florida real estate indirectly, the FIRPTA would not apply. As such, if the Florida real estate is sold under this structure of investment, only a single level of tax is required and the proceeds of the sale can then be distributed to the foreign corporation free of U.S. withholding tax. Subsequently, the foreign corporation can pay the proceeds to its foreign investor shareholder with no further U.S. tax implications.
Tax consequences of any type of ownership:
Regardless of the type of entity by which a foreign investor elects to hold title, said individual should seek independent counsel and advice pertaining to tax and estate ramifications in both the United States and the individual's country of residence.
In future articles we will discuss how title to real estate can be held by foreign individuals using a living trust.
The law firm of DeLoach, Hofstra & Cavonis, P.A., is very knowledgeable concerning all aspects of the creation of living trusts. Contact us if you would like further information.