Buying NYC Real Estate Through a Trust: Guide for Non-U.S. Families

A couple living abroad, in a country with no U.S. estate tax treaty, wants a $12 million Manhattan condominium. Their green-card daughter will live in it part of the year. Their adviser says to buy through a trust. Whether that works depends on what the trust may do, and in what order.

The $60,000 problem

A decedent who is neither domiciled in nor a citizen of the United States [1] is taxed on U.S.-situated property, and the IRS lists U.S. real estate first among the assets covered [2].

Form 706-NA is due within nine months of death once U.S.-situated assets plus adjusted taxable gifts exceed $60,000, a threshold the IRS says is not indexed for inflation [3]. A $12 million apartment in a parent’s own name is fully exposed.

Sources: [3] [9] [12] [14]

Fund the trust before it buys

The gift tax rule is narrower: for a nonresident non-citizen it reaches only real and tangible personal property situated in the United States at the time of the transfer [5] [4].

In a 2003 private letter ruling a nonresident alien funded a trust “with cash transferred directly from A’s accounts in Country 2”; the IRS treated cash as tangible property but held that because “the funds were not physically situated within the United States prior to the transfer,” the funding “was not a transfer that was subject to the gift tax” [6].

Two consequences follow. The wire runs from the foreign account to the trust, not through a U.S. escrow first; the regulation tests location “at the time of the transfer,” and no authority extends the ruling to cash parked in a U.S. account [5].

And the trust, not a parent, signs the contract: a parent who closes personally and later deeds the unit to the trust has made a taxable gift of U.S. real property [4].

What the parents cannot keep

The trust works only if the parents give up the rights the Code treats as ownership.

Property returns to the estate where the decedent retained, for life, “the possession or enjoyment of, or the right to the income from, the property” or the right “to designate the persons who shall possess or enjoy the property” [7].

Property caught by those rules is U.S.-situated if it was in the United States at the transfer or at death [8]. So neither parent may hold a right to occupy the unit, receive its rent, or choose who stays there, nor a power exercisable for themselves, their estates or their creditors [16].

Whether visits without a reserved right, or occupancy under a fair-market lease, stay outside these rules is not settled; the lease and rent record are the best evidence.

Income tax status is separate. A non-U.S. settlor is generally treated as owner only where the trust is revocable or lifetime distributions can go only to the settlor or spouse [17], and a power to revoke defeats the estate tax purpose.

An irrevocable non-grantor trust is the supported starting point; trustee-removal powers, protectors and reciprocal spousal trusts are unresolved and should be drafted conservatively.

Direct title, LLC, partnership or foreign company

New York adds a layer. A nonresident’s estate files a New York return if it includes real or tangible property in the State and the federal gross estate plus includible gifts exceeds $7,350,000 for deaths in 2026 [9].

Intangibles are outside the tax, and the Department has classified each holding tier.

Holding structure	Federal estate tax	New York estate tax	On sale
Trust holds the unit directly	Outside the estate only if no retained possession, income or designation right	Real property, if included federally	15% withholding on amount realized
Trust holds a single-member LLC	Situs not resolved	LLC ignored; the unit is real property	Mechanics through the LLC not resolved
Trust holds a multi-member LLC or partnership	Situs not resolved	Intangible, absent retained-interest or economic-substance issues	Partnership withholds on foreign partners’ gain
Trust holds a foreign corporation	Foreign stock not U.S.-situated; anti-avoidance not addressed	Intangible	Gain is effectively connected; corporate tax needs separate analysis

Sources: [8] [10] [11] [12]

The daughter’s keys

A trust is foreign unless a U.S. court can exercise primary supervision and U.S. persons control all substantial decisions [14].

If so, the IRS requires Form 3520 from a U.S. person who “receives distributions from a foreign trust, receives the uncompensated use of property of a foreign trust, or receives a loan from a foreign trust” [13].

Rent-free occupancy has its own issues. The initial penalty for an unreported distribution is the greater of $10,000 or 35 percent of its value, and without adequate records a distribution is taxed under the throwback rules [14].

Sources: [7] [16] [14] [6]

Debt and the eventual sale

A foreign-bank mortgage is often proposed as a back-stop.

The Code allows a non-domiciliary’s estate to deduct debts only in the proportion the U.S. gross estate bears to the worldwide estate, and only if the worldwide estate is disclosed [15]; a dollar-for-dollar reduction for a loan secured solely by the unit is not in the statute.

On sale, the buyer withholds 15 percent of a foreign seller’s amount realized, recoverable on a U.S. return or through a withholding certificate on Form 8288-B [12].

The sequence that works

1. Settle the irrevocable trust first. Independent trustee; no parental right of occupancy, income or designation.
2. Wire the purchase funds from the foreign account directly to the trust. Never through a U.S. escrow or a parent’s U.S. account.
3. Choose the holding tier with the income tax modeled. A disregarded LLC gives no New York benefit; a partnership or corporate tier does, at a price.
4. Have the trust or its entity sign the contract and take title. No parent appears on the deed at any point.
5. Lease to the daughter or report her use. The trustee issues her an annual statement; she files Form 3520.

Sources: [5] [7] [10] [13]

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. Reading it does not create an attorney-client relationship with Dilendorf Law Firm. Prior results do not guarantee a similar outcome. Attorney Advertising.