Avoiding estate taxes on real estate investments in the United States

It is generally advisable to establish a Limited Liability Company (LLC) when making real estate investments in the United States. The purchased properties are titled under the LLC, and all costs and revenues related to the management of the real estate investment are attributed to the LLC. In fact, with this corporate structure, taxes can be avoided for the first 10 to 15 years after purchasing the property because both costs and property depreciation are deductible.

American LLC and foreign company

To eliminate estate taxes payable in America, the LLC could, in turn, be owned by a foreign company. When the owner of the LLC passes away, the foreign company remains unaffected by the event, thus avoiding the payment of estate taxes in the United States.

LLC and life insurance policy

If one does not wish to create a foreign company to own the American LLC, it is advisable to take out a life insurance policy so that, in the event of premature death (a neutral term to define the death of the LLC owner to whom the property in America is titled), the life insurance pays an amount roughly equivalent to the estate tax payable in the United States related to the property titled to the LLC. However, subscribing to a life insurance policy to offset American estate taxes with the insurance premium has a limit based on the property's value: when the value of the real estate investment exceeds certain amounts, it becomes challenging to stipulate an effective life insurance policy for these purposes.

Other tax optimization strategies to avoid paying estate taxes in America on real estate investments

There are other entirely legal methods that can be used to completely avoid paying estate taxes in America. We invite you to contact us to discuss them in detail.