Just When You Thought it Was Over . . . .

This article’s author is Kenneth Rubinstein

As a result of the Great Recession, many homeowners and would-be real estate investors found themselves facing foreclosure of “underwater” properties by banks and other lenders.  After losing their property, many borrowers heard nothing more and thought their ordeal was over.  They did not realize that, since the bank sold their property for less than the mortgage balance, they were also liable to the bank for the deficiency – the difference between the value of the underwater property and the full balance of the mortgage (including penalties, interest and legal fees).
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2013 Year End Notes, Part 4: Asset Protection Considerations

Asset Protection for Financial Professionals, Hedge Fund Managers and Investment Advisors

During 2013, we have seen the growth of a new group of clients interested in asset protection: investment advisors, hedge fund managers and other financial professionals.  This group is faced with an increase in lawsuits brought by litigious investors against their financial advisors and those charged with making investment decisions.  As investors seek to blame others for investment losses, they are now suing fund managers and investment advisors personally, in addition to the fund itself or the advisor’s employer.  In the past, it was routine to sue the fund or financial institution; naming the fund manager or investment advisor personally is relatively new, but a phenomenon that we are seeing in increasing numbers. Continue reading

New Opportunities for Ownership of Co-op Apartments by Family Limited Partnerships & Trusts

Many residential apartments are owned by cooperative corporations (“co-ops”).  In New York City, it has been estimated the coop apartments outnumber condominium apartments by three to one.  The boards of directors of co-ops have been known to be especially and unreasonably restrictive as to who they will admit as shareholders and residents, and many boards, especially in New York, have acquired reputations of being “snooty” and exclusive.  The pop singer Madonna was famously rejected by the co-op board of a very expensive Park Avenue building.

The Wall Street Journal reports (“Co-ops Get Competitive”, August 29, 2013, page A-17) that the boards of cooperative apartments are now relaxing their policies and acceptance criteria in order to appeal to younger buyers, as well as to foreign buyers, who are not willing to put up with onerous admission requirements and unreasonable restrictions.  These co-op boards are changing their policies in order to be competitive with condominiums and in order to attract new investment and new buyers.

What does this have to do with asset protection and tax minimization?

First, one’s home, whether a co-op, condo, house or otherwise, is normally a very significant asset and should be protected from future claims.

As the Wall Street Journal points out, “while buyers have always been able to buy condos and townhouses anonymously under corporations and trusts, now even some Fifth Avenue [co-op] boards have let brokers know that they would now consider purchases done in the names of trusts or limited liability companies . . . .”  And, we would expect, in the names of family limited partnerships (FLPs), which are similar to limited liability companies (LLCs) but offer better asset protection.  Thus, ownership of a co-op by an FLP is advisable if allowed by the co-op board.

Second, as noted above, co-op boards are positioning themselves to take advantage of the healthy demand by wealthy foreign buyers for U.S. real estate.  As the Wall Street Journal reported, co-op boards have clarified their rules, and made “it clear that international buyers, who are active in the condo market, were welcome” at co-ops as well.  We have written before about the appeal of U.S. real estate, especially expensive apartments, to wealthy foreign buyers.  We have also discussed how, through the use of certain hybrid trusts, foreign buyers can minimize their exposure to the Foreign Investment in Real Property Tax Act (“FIRPTA”), which imposes an onerous 10% tax on the gross sale proceeds when a foreign owner sells U.S. real estate.  Please see our article, How Foreign Purchasers of U.S. Real Estate Can Save Significant Taxes.

As co-ops attract new buyers, domestic and foreign, it is important to consider the best form of ownership of real estate.  Ownership in entities such as FLPs and trusts may offer significant asset protection and tax benefits.  Please contact us for additional information.

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