Buying U.S. Real Estate for Family: Why Non-U.S. Residents Often Choose a Trust Over an LLC

A parent or other relative who lives outside the United States often wants to buy U.S. real estate for a family member who lives here. The structure chosen at the start decides whether U.S. gift and estate tax apply later. This article explains why moving LLC membership interests is risky and why a professionally administered U.S. trust is often the cleaner choice.

An example

A father who lives outside the United States, and is not a U.S. citizen, wants to buy a $1.2 million home for his daughter, a U.S. resident. An adviser suggests an LLC (limited liability company) owned 90 percent by him and 10 percent by her.

The plan is for him to give her more of the company over time. The family asks whether that works, or whether a trust would be better.

The $60,000 problem

U.S. citizens and residents have a basic exclusion of $15,000,000 for 2026 [1]. A person who is neither gets far less. The executor must file an estate tax return if “the fair market value at death of the decedent’s U.S.-situated assets exceeds $60,000” [2].

Real estate located in the United States is a U.S.-situated asset [2]. The only credit is $13,000 [3]. That equals the tax on the first $60,000, and rates then rise to 40 percent above $1,000,000 [4].

On a $1.2 million home held in the father’s own name, that is about $410,000 of tax before any deductions. The IRS lists estate or gift tax treaties with only 15 countries, so many families cannot rely on one [5].

Why moving LLC interests is risky

Gift tax works differently for a non-U.S. resident. It applies only to “real property and tangible personal property situated in the United States” [6]. It does not reach “the transfer of intangible property by a nonresident not a citizen of the United States” [7].

Whether an LLC interest is intangible is not settled. An LLC with two or more members is treated as a partnership for tax purposes unless it elects otherwise [8]. The IRS will not issue advance rulings on whether “a partnership interest is intangible property” for this exemption [9].

That leaves the family without certainty. The tax covers gifts made “directly or indirectly, in trust, or by any other means,” so the IRS could treat the gift as an indirect transfer of the home [10].

If tax applies, there is no lifetime credit. That credit is limited to “a citizen or resident of the United States” [11]. Only the $19,000 annual exclusion per recipient is available [12].

The numbers

Suppose the father gives his daughter 20 percent of the LLC, worth $240,000. After the $19,000 exclusion, the taxable gift is $221,000. The tax is $38,800 plus 32 percent of the amount over $150,000, or $61,520 [10].

Giving her his full 90 percent in one transfer would cost about $370,000. He must also file Form 709-NA, the gift tax return for non-U.S. residents [10]. Whatever he still owns at death remains exposed to the estate tax described above.

Why cash from abroad is different

Timing is the key. In a private letter ruling, the IRS concluded that cash transferred from a donor’s foreign accounts was not “physically situated within the United States prior to the transfer,” so no gift tax applied [13]. A private letter ruling may not be cited as precedent, but it shows the reasoning.

Once the money sits in a U.S. LLC and becomes a house, that argument is no longer available. The gift is not foreign cash. It is an interest in a company that owns U.S. real estate.

How the trust works

The alternative is an irrevocable U.S. trust for the daughter. The father signs the trust, then wires cash from his foreign account to the trust’s account. The trust, usually through its own LLC, buys the home.

The trust should be a non-grantor trust, meaning the trust itself is the taxpayer. For a foreign donor that is the usual result. He is treated as the owner only if he can take the property back, or if distributions can go only to him or his spouse [14].

It should also be a domestic trust. A U.S. court must be able to supervise it, and “one or more United States persons have the authority to control all substantial decisions of the trust” [15].

A professional U.S. trustee meets that test. A veto held by the father would break it, because control means “no other person having the power to veto” [16].

Strings that pull the property back

The trust works only if the father truly gives the property up. The property is included in his U.S. estate if he keeps “the possession or enjoyment of, or the right to the income from, the property” [17]. The same is true if he keeps a power “to alter, amend, revoke, or terminate” the trust [18].

In practice, he should not live in the home rent-free, manage the LLC or direct the trustee. This is why an independent, professional trustee matters.

What the trust must file

A domestic non-grantor trust reports the father’s contribution on Form 3520, the form for large foreign gifts [19]. The threshold is more than $100,000 from a non-U.S. individual. The penalty for late reporting is 5 percent per month, up to 25 percent [19].

The trust also pays its own income tax. Trust brackets are narrow: the 37 percent rate starts at $16,000 of taxable income in 2026 [1]. That matters if the home will be rented.

The order that works

1. Confirm the donor’s status: citizenship, country of residence and any treaty.
2. Sign the trust with an independent U.S. trustee before any money moves.
3. Wire the cash from the foreign account directly to the trust.
4. Have the trust form the LLC and buy the property.
5. File Form 3520 and keep the donor out of control and use.

This article is for general informational purposes only and does not constitute legal or tax advice. Outcomes depend on the facts of each matter and no result is guaranteed. The example is illustrative and does not describe any client. Thresholds are those published by the agencies as of the date of writing. Reading it does not create an attorney-client relationship with Dilendorf Law Firm. Prior results do not guarantee a similar outcome. Attorney Advertising.