Do You Own Property in Another State? If So, Be CarefulBy Juan Pablo G. Zaragoza, Esq., Braun Siler Kruzel PC
If you own a condo in San Diego, a beach house in Rocky Point or an interest in an Asian import/export business, you need to be especially careful when it comes to your estate and tax planning. If you own property in another state or another country you may face some unique challenges, including: How should your property be titled? How will the property pass upon your death? What are the possible tax consequences? How does the property located outside of Arizona fit into your overall estate plan?
Some of these issues can be more easily addressed than others. For example, if you own a condo in San Diego and establish a revocable living trust in Arizona all that may be required is to transfer title to the condo into the name of the trust. In some states, that transfer into a revocable trust is easier said than done. Make sure to get able assistance from a local attorney or title office to help you transfer the property into the trust. Unfortunately, if you do not follow through and complete the transfer you lose one of the primary benefits of creating a revocable living trust, avoiding probate in all states. When the condo is not properly transferred into the trust it may be necessary to open probate proceedings after your death. Ask anyone who has experienced a California probate and the horror stories will come pouring in. In addition, it is important to note that although Arizona and California do not impose a "state" estate tax in addition to the federal estate tax, approximately twenty-one states impose some form of estate tax. If you own property in one of these twenty-one states, additional planning may be required to avoid that state's estate tax.
Is your beach house in Rocky Point properly titled from a tax and estate planning perspective? Counsel in Mexico will inform you that a non-Mexican citizen cannot directly own real property within 100 kilometers from the national borders or 50 kilometers from the coastlines (the "Restricted Zone"). So what do you do with the beach house in Rocky Point? That counsel will also advise you to place the beach house that is located in the Restricted Zone into a fideicomiso, or trust. A Mexican bank will need to serve as trustee of the fideicomiso, and the beneficiary can be you, your US-based trust, or your US-based limited liability company or limited partnership. Your estate planning attorney should work with counsel in Mexico in order to determine the best person or entity to name as the beneficiary of your fideicomiso.
What about your interest in the Asian import/export business and your other foreign assets? Are such assets subject to estate tax? Yes. The federal estate tax applies to anybody who is a US citizen, a US resident and to foreigners who own certain types of assets here in the US. For US citizens and residents, the tax applies to their world-wide assets, wherever those may be located. You will need a tax advisor with experience in international law to advise you in connection with how these assets should be titled and the best way to distribute them upon your passing. Your advisor may also need to secure local counsel in Asia or in any other applicable jurisdiction in order to address these issues, and that foreign counsel will also help you understand the language and the local culture in the applicable jurisdiction.
So as you can see, if you have a varied mix of assets, you will not be able to address all these issues alone. You will need to assemble a team of advisors that may include an accountant, financial advisor, insurance agent, bank/trust officer and estate planning attorney. In addition, foreign counsel may need to be involved. Your advisors will be able to assist you in putting a plan together that can help you address these issues and guide your loved ones after your death in dealing with all of your assets, no matter where in the world those assets may be located.