With a booming economy, attractive beaches and numerous attractions, South Florida has, over the last years, seen a flood of foreign investors seeking, among other things, to purchase real estate for either residential or com mercial purposes. In a world where many foreign currencies fluctuate greatly on a monthly, if not daily, basis, a real property investment protected by a stable U.S. economy and a strong currency justifiably appears to be a reasonably safe method to protect one's assets against the roller coaster of the world's and developing countries' economies.
Once a foreign investor has made the decision to purchase real estate in Florida, the next issue to resolve is exactly how this foreign investor will hold title to the property he intends to acquire. Unlike many other foreign countries, the United States allows foreign citizens to hold title to real estate in fee simple, i.e. personally and absolutely regardless of any immigration status and without the need for assistance from a U.S. trustee or company. This article will discuss the most common methods of ownership in Florida, which can be divided into ownership through persons and ownership through legal entities.
Sole Proprietorship in Fee Simple
This is the simplest form of ownership. The Buyer purchases the real property in his own individual name. It should be noted that when this method of ownership is selected, the attorney or title company handling the closing will usually require the Buyer to disclose his marital status. The marriage status of the owner becomes especially im portant when he or she will in turn sell or mortgage the property to a third party. Because of the homestead protection from creditors pursuant to the Florida Constitution, the signature of the unnamed spouse is required in order to mortgage or sell a primary residence located withi n the State of Florida. If the real property is a second home, the deed or instrument of conveyance executed by the Seller must contain language affirmatively stating that the property bei ng conveyed is not the Seller's primary residence or homestead.
The main advantage of sole proprietorship in fee simple is the fact that it can be easily conveyed without the necessity to produce the signatures of others (except for the spouse in case of homestead) or any other sort of trust or corporate formalities.
Co- Tenancies
Co-Tenancies are created when two or more individuals or entities share ownership of real property as a whole. There are three basic forms of co-tenancies.
Tenants In Common
A common form of co-tenancy is the ..tenancy in common". The most common way of creating a tenancy
in common is by conveyance or transfer to two or more persons. It may arise by a deed or conveyance of an undivided tract of land to two or more persons, in which case the new owners are tenants in common until the tract is divided by agreement or otherwise. A tenancy in common among partners may be created if a partner purchases properties out of the partnership funds where the property is not to be used for partnership purposes. If one partner conveys his partnership interest to a stranger, the latter and the remaining partners become tenants in common.
The interest of tenants in common in real property ownership is subject to the laws of descent and distribution. I n the event of the death of a tenant in common, his interest in the subject real property will be included in the tenant's estate and will pass on to his hei rs or beneficiaries through probate. Unless specifically described in the instrument of conveyance (or Deed), it may be presumed that the interests of tenants in common are equal. For example, i f Property A is conveyed to Mr. Smith and M r. Wilson as tenants in common, it will be presumed that Mr. Smith and Mr. Wilson each have a 50% interest in that property. If Mr. Smith and Mr. Wilson intend to split the property otherwise, it should be specifically spelled out in the Deed. The percentile interest of tenants in common becomes really relevant only when revenues generated by the real property or sales proceeds are divided among the co-owners because an important feature of a tenancy in common is '"unity of possession". Unity of possession means that tenants in common must be vested with such title as will authorize them to take and hold possession of the property.
Joint Tenancy with Right of Survivorship
An estate in joint tenancy can only be created through a Deed or a Will. In order to create a joint tenancy with right of survivorship, there must be unity of possession, interest, title and time. In Florida, the right of survivorship must be expressly provided for in the Deed or Will. Unity of possession, interest, title and time means that all joint tenants of a property must have acquired equal rights and an equal interest in the property at the same time.
A joint tenancy may be broken or terminated voluntarily through a partition of the property or involuntarily by conveyance of the interest of any joint tenant to a third party. Indeed, any conveyance by a joint tenant to a third party would extinguish the requisite unity of title and time. The most popular advantage of joint tenancy is that it is not subject to the laws of descent and distribution. Therefore, upon death of a joint tenant, the property passes to the surviving tenant(s) to the exclusion of the heirs of the decedent. It should be mentioned that the last surviving tenant will receive the estate in sole proprietorship and the property will pass to his heir through probate upon his death.
Estate by The Entirety
An estate by the entirety is basically a joint tenancy by husband and wife. As tenants by the entirety, husband and wife own and control the whole estate as if one person under the law. The estate by the entirety also features the right of survivorship. However, because of the required marital relationship between the owners, the right of survivorship does not need to be expressly described in the Deed or instrument of conveyance. Because a tenancy in the entirety is based on the marital relationship between the two owners, the general rule is that dissolution of the marriage destroys an estate by the entirety and converts the husband and wife into tenants in common as if they were never married.
While the use of co-tenancies has been justifiably recommended by attorneys advising foreign clients in connection with the estate planning aspect of their real estate acquisitions, it should be pointed out that the necessity of obtaining the signature of all co-tenants in order to convey full fee simple title to a third party can create some difficulties where the other co-tenants may be difficult to reach and/or their relationship may have deteriorated and cooperation from them may be hard to obtain. On the other hand, a tenancy by the entirety provides some asset protection to those foreigners who do not qualify for the homestead protection from creditors otherwise, as collection into such property is only possible i f a judgment exists against both husband and wife.
Real Property Ownership Through A Corporate Entity
For estate planning or liability purposes, foreign investors may be advised by their attorney to purchase real estate in the name of a domestic or foreign corporation (or as tenants by the entirety as stated above). The advantages of owning real estate through a corporate or similar business entity has numerous advantages which are discussed in this article. It should be noted, however, that these advantages come at a cost. In addition to the annual fees and additional accounting requirements which wi ll be required for the proper maintenance of corporate fonnalities, financing will be more difficult and costly to obtain (larger equity in the property required, higher interest rate, personal guarantees of foreigners) and insurance premiums for the property will probably also be higher. Consequently, the typical foreign investor, in light of his own personal situation should balance the potential advantages and costs of corporate ownership before setting up sophisticated corporate structures for real estate purposes. On the other hand, where foreigners can take advantage of double tax avoidance treaties, they might have a significant advantage exempting property from estate taxation in the United States by holding it through a corporate entity.
Trusts
Some estate planners may recommend the use of a trust or '·Florida Land Trust" under certain circumstances. Most trusts grant the power to hold, manage and convey the property to one or more trustees who m ust perform their duties in the best interest and for benefit of the beneficiaries of the trust. Under certain types of trusts, the trustee(s) may also be beneficiaries of the trust (grantor trusts). Dependi ng on the language of each trust agreement, the powers of trustees can be more or less restricted to fit the specific intent and purpose of the individual(s) creating said trusts. There are several types of trust agreements (revocable, non-revocable, land trusts, etc.). The choice of a specific type of trust should only be made after consulting a specialized professional.
Conclusion
When selecting a form or method of real estate ownership, foreign investors should seek professional advice, and should not only consider the tax and estate planning ramifications of their choice, but also consider the short- and long-term costs which will result from their choice (facilities i n obtaining).