U.S. Real Estate for Foreign Buyers: Estate Tax, Ownership Strategy, and Risk

How to protect capital from estate tax without losing flexibility.

The Hidden Risk Most International Buyers Miss

For non-U.S. buyers, purchasing real estate in the United States introduces a risk that is rarely explained clearly:

U.S. estate tax exposure of up to 40%.

This is one of the most commonly misunderstood aspects of U.S. real estate ownership for international buyers.

Unlike U.S. citizens, foreign individuals are granted only a $60,000 exemption. Above that threshold, U.S.-situated assets — including real estate — may be heavily taxed at death.

On a $5M–$15M property, this is not theoretical. It is a material capital risk.

On higher-value properties, the impact can be substantial. A $10M property owned directly by a foreign individual can create estate tax exposure exceeding $3M, depending on structure.

Why This Must Be Addressed Before You Buy

This is not something that can be corrected after closing.

The way a property is owned from the beginning determines:

• whether estate tax applies
• how financing is structured
• how easily the asset can be transferred or sold

The ownership structure is not an afterthought. It is part of the investment decision itself.

How U.S. Estate Tax Applies to Foreign Owners

For non-resident, non-citizen investors:

• U.S. real estate is considered U.S.-situs property
• Only $60,000 is exempt
• Remaining value may be taxed at rates up to 40%

This applies regardless of:

• residency
• where income is earned
• whether the property is used personally or as an investment

How Foreign Buyers Manage U.S. Estate Tax Exposure

There is no one-size solution. Sophisticated buyers typically evaluate three approaches.

Each of these approaches reflects a different priority:

• minimizing tax exposure
• preserving financing flexibility
• maintaining simplicity of ownership

The optimal approach depends on how the investment fits into a broader capital strategy — not just the property itself.

1. Structured Ownership

Some buyers structure ownership through non-U.S. entities so the asset is not treated as U.S.-situs at death.

This approach can:

• eliminate estate tax exposure entirely
• provide privacy and succession control

However, it may:

• complicate financing
• introduce additional tax considerations
• require ongoing administration

2. Insurance Strategy

Other buyers prioritize simplicity. They purchase directly and use insurance to cover potential estate tax exposure. In practice, insurance availability varies—while younger buyers may find it more accessible, older buyers may face higher costs or limited options, which can influence the overall strategy.

This allows:

• clean ownership
• more favorable financing
• liquidity at death

However:

• it does not reduce the tax
• it requires long-term planning

3. Hybrid Approach

Some buyers combine elements of both:

• partial structuring
• insurance coverage
• strategic financing decisions

This approach can balance efficiency and flexibility — but must be designed intentionally.

For a broader overview of how international buyers approach U.S. real estate, see our framework for capital deployment in NYC and Miami.

The Tradeoff Most Buyers Miss

The structures that eliminate estate tax exposure are not the same structures lenders prefer.

This creates a fundamental decision:

• optimize for tax efficiency
• or optimize for financing and flexibility

The right strategy depends on:

• purchase price
• leverage strategy
• holding period
• broader portfolio objectives

Acquisition costs sit alongside structure as a separate decision — closing costs in NYC and Miami follow a different set of rules.

Do LLCs or Trusts Avoid U.S. Estate Tax?

Many international buyers assume that holding U.S. real estate through an LLC, or placing it in a trust, solves the estate tax problem. On its own, neither does.

Both are domestic ownership wrappers. They do not change how the U.S. classifies the underlying asset for estate tax purposes. If the property remains U.S.-situs, estate tax exposure generally still applies.

To eliminate exposure, the ownership structure itself must change. An LLC or a trust may then be layered on top to provide:

• control
• privacy
• succession planning

What Sophisticated Buyers Actually Do

In practice, strategies tend to align with asset size:

• $2M–$5M — often prioritize financing and simplicity, while managing exposure through insurance.
• $5M–$15M — evaluate structure vs insurance vs hybrid.
• $15M+ — structured ownership, sometimes combined with insurance.

Owners weighing a change in residence face a separate set of state-level questions — the NYC-to-Miami tax migration covers that ground.

For high-end Manhattan properties at the trophy tier, structured ownership is the norm rather than the exception.

A Capital Decision — Not a Technical Detail

This is not just tax planning. It is about how capital enters — and eventually exits — the U.S. real estate market.

The wrong structure can create unnecessary exposure. The wrong financing approach can limit flexibility. Both must be considered together.

Every ownership structure depends on how you plan to finance, hold, and eventually exit the investment.

We work with international buyers and their tax and legal advisors to align ownership structure with the overall real estate strategy.

→ Schedule a private consultation.