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.

Victory for Rubinstein & Rubinstein, LLP Leads to Reform of New York State Property Tax Law

Victory for Rubinstein & Rubinstein, LLP Leads to Reform of New York State Property Tax Law

New York, NY – September, __ 2008 – An important victory by Rubinstein & Rubinstein, LLP against a New York State municipality has been underscored by the recent codification of that victory as statutory law.

In the case, Rubinstein v. Office of the Assessor (NY Sup. Ct., Rockland Co., N.Y.L.J. Oct. 22, 2003), the court ruled against a New York State municipality that had denied the STAR tax exemption for personal residences owned by Family Limited Partnerships (FLPs).  The court held that it is unconstitutional for local tax departments to deny this tax exemption to FLPs.

On April 23, 2008, the New York State legislature in Albany amended section 425 of the Real Property Tax Law to include dwellings held by qualified limited partnerships, including FLPs, as eligible for the STAR exemption.

The amended statute now states that a limited partnership is qualified for the exemption if the dwelling held by the partnership is the primary residence of one or more partners who pay all taxes and other costs associated with the dwelling, the partnership does not engage in any commercial activity and was lawfully created for estate planning or asset protection purposes.  Significantly, and with potentially wide ranging impact, asset protection is specifically recognized in the statute as a legitimate, bona fide goal, on par with estate planning.

Properties held by FLPs that were previously denied the STAR tax exemption may benefit from application for a retroactive rebate.

This tax law amendment is the latest example of significant tax victories by Rubinstein & Rubinstein.  Earlier, Rubinstein also won a decisive victory against the New York City Tax Department when the Tax Appeals Tribunal determined that the City improperly taxed an upfront, lump-sum payment of rent in a long-term lease.  Rubinstein successfully argued that a long-term lease is not subject to Real Property Transfer Tax (RPTT) merely because the lessee paid one upfront lump-sum payment at the start of the lease term.

In an earlier matter, Rubinstein was successful in arguing that real property transfer taxes imposed by the City of New York on transfers of real property from an individual to an FLP were improper.  The tax arbiter agreed with Rubinstein, holding that no transfer taxes were warranted because the transfers were a mere change in identity or form of ownership, while the beneficial ownership of the property remained the same after the transfer to the FLP.

For more information about Rubinstein & Rubinstein’s legal services, including tax planning and tax representation, please visit www.AssetLawyer.com.
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Contact:
Kenneth Rubinstein, Esq.
www.AssetLawyer.com
212-888-6600
Rubinstein & Rubinstein, LLP
18 East 48th Street
New York, NY 10017

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