On Aug 22 2016 by Daniel B. Lundy
Minors as EB-5 Investors
As the EB-5 visa backlog for natives of China continues to increase, parents looking to use the EB-5 program to obtain U.S. permanent residence for their children are faced with the prospect of their children reaching the age of 21 prior to an EB-5 visa becoming available to them and their families. As a result, many are considering gifting the investment funds to their child, and letting the child be the EB-5 investor and Petitioner. We have been asked by clients and others if and how this can be accomplished. We provide a brief explanation below. For more detailed information, be on the lookout for the upcoming article on the topic co-authored by me and Catherine DeBono Holmes of Jeffer Mangels Butler & Mitchell LLP.
First, it is important to note that USCIS does not have an established policy regarding the approval of minors as EB-5 investors. While there presently is no specific prohibition, USCIS policy could change at some point in the future to disallow minor investors. As a result, we advise proceeding with caution, and limiting the number of minor investors in any given project.
USCIS stated at a recent stakeholder meeting that there is nothing prohibiting a minor from being an EB-5 investor and petitioner, however, the investor must prove by a preponderance of the evidence that the investment contract is valid and not voidable. In the U.S. contracts entered into by minors are typically void or voidable by the child when he or she becomes an adult. However, under the Uniform Transfers to Minors Act, or UTMA (also known as the Uniform Gifts to Minors Act), a parent or guardian, acting on behalf of a minor child, can enter into a contract on behalf of that child, and that contract is not voidable. In order for such a sale to occur, the subscription agreement and operating agreement need to contain the following language on the signature page:
______________________ (NAME OF PARENT OR GUARDIAN) as custodian for ______________________ (NAME OF MINOR INVESTOR) under the [State] Uniform Transfers to Minors Act
Printed Name of Parent or Legal Guardian
Signature of Parent or Legal Guardian
There are a few important points to remember. First, the parent(s) must gift the investment funds to the child. The child must receive the funds into an account of the child’s, or a joint account of the child’s and parent’s. Second, the parent at no point in time owns the limited partnership or limited liability company interest in the EB-5 investment company. Ownership vests directly in the name of the child. Third, although the parents are responsible for managing the asset until the child turns 18 (or 21 in some states), upon reaching this age, control automatically vests with the child.
The purchase of an interest in the EB-5 company under the UTMA on behalf of a child results in a non-voidable investment contract, which should satisfy the current EB-5 requirements as interpreted by USCIS. Children under 14 may not be able to sign USCIS forms on their own behalf, and we generally recommend against accepting investors under 14. Even though there is no age limit set by law, regulation, or USCIS policy, our preference is to limit such transactions to cases where the child is 16 or 17 years old. 15 and 14 are not prohibited, but may, either now or in the future, meet with more resistance from USCIS, or potential negative publicity or political scrutiny. Keep in mind also that many of the banks holding EB-5 escrow accounts either will not accept deposits from minors, or do not have a policy on accepting such deposits, meaning that minor investors may have to waive escrow in order to make an investment. Because the trend of minor investors is a new development in the EB-5 industry, we expect that the landscape will continue to evolve.
This topic will be discussed in detail at our September 9 EB-5 seminar in Philadelphia entitled “EB-5 at a Crossroads.”