How an LLC may be part of your estate plan.

Business owners are familiar with the benefits of forming limited liability companies (LLCs), such as pass-through taxation and shielding owners from personal liability. But LLCs can be used as part of an estate planning strategy as well. When they are used in this way, LLCs provide similar advantages to testators and their families.

The Basics of LLCs and Family LLCs

A limited liability company lies somewhere between a partnership and a corporation. This business structure is beneficial for small business owners as it provides a separate legal structure, limited liability for owners, flexible management, and pass-through taxation. While business owners generally understand LLCs, not as many individuals understand that an LLC can be used to plan one’s estate as well.

A family LLC allows an individual to transfer assets to his or her children, grandchildren, and other family members, but with specific benefits and protections. A testator can use a family LLC to control and protect assets during his or her lifetime, keep assets within the family, and obtain tax reductions. The main difference between a family LLC and a standard LLC like the one described above is that only individuals who are related by blood or marriage can form a family LLC.

The Benefits of Family LLCs

It’s important to have an experienced estates and trusts attorney assist with creating a family LLC so the law will treat it as such. When a family LLC is used as part of an estate plan, its organizers, who own the LLC’s assets, can grant shares in the company to other family members like children and grandchildren. These relatives will act as non-managing members who lack voting rights in the organization. While they benefit from the LLC, they have restrictions on their ability to sell shares or withdraw assets.

Once the LLC is created, its organizers transfer assets into it. Ownership of these LLC assets can then be given to children or other family members at the organizers’ discretion. The family LLC offers the following estate planning benefits:

• Managing control over asset distributions. The organizers of the family LLC can distribute shares in the company however they wish during their lifetime.
• Decreasing the size of the taxable estate. By giving away LLC shares, the organizers reduce their stake in the company. This reduces the size of the estate that is subject to taxation and thereby can save significant money.
• Avoiding the gift tax. When individuals give gifts, they pay a tax if the gifts exceed a certain dollar value ($17,000 as of 2023). But this tax does not apply to ownership interests transferred in a family LLC.
• Preserving family assets. As mentioned above, organizers can limit whether members of the family LLC can transfer assets outside the family. This prevents these relatives from making unwise financial decisions that deplete family wealth.

Guiding You and Your Family in Estate Planning

Family LLCs are just one component of a comprehensive estate plan. We can provide more details about the benefits of these LLCs and recommend other tools that can accomplish your personal objectives.

Business owners are familiar with the benefits of forming limited liability companies (LLCs), such as pass-through taxation and shielding owners from personal liability. But LLCs can be used as part of an estate planning strategy as well. When they are used in this way, LLCs provide similar advantages to testators and their families.

The Basics of LLCs and Family LLCs

A limited liability company lies somewhere between a partnership and a corporation. This business structure is beneficial for small business owners as it provides a separate legal structure, limited liability for owners, flexible management, and pass-through taxation. While business owners generally understand LLCs, not as many individuals understand that an LLC can be used to plan one’s estate as well.

A family LLC allows an individual to transfer assets to his or her children, grandchildren, and other family members, but with specific benefits and protections. A testator can use a family LLC to control and protect assets during his or her lifetime, keep assets within the family, and obtain tax reductions. The main difference between a family LLC and a standard LLC like the one described above is that only individuals who are related by blood or marriage can form a family LLC.

The Benefits of Family LLCs

It’s important to have an experienced estates and trusts attorney assist with creating a family LLC so the law will treat it as such. When a family LLC is used as part of an estate plan, its organizers, who own the LLC’s assets, can grant shares in the company to other family members like children and grandchildren. These relatives will act as non-managing members who lack voting rights in the organization. While they benefit from the LLC, they have restrictions on their ability to sell shares or withdraw assets.

Once the LLC is created, its organizers transfer assets into it. Ownership of these LLC assets can then be given to children or other family members at the organizers’ discretion. The family LLC offers the following estate planning benefits:

• Managing control over asset distributions. The organizers of the family LLC can distribute shares in the company however they wish during their lifetime.
• Decreasing the size of the taxable estate. By giving away LLC shares, the organizers reduce their stake in the company. This reduces the size of the estate that is subject to taxation and thereby can save significant money.
• Avoiding the gift tax. When individuals give gifts, they pay a tax if the gifts exceed a certain dollar value ($17,000 as of 2023). But this tax does not apply to ownership interests transferred in a family LLC.
• Preserving family assets. As mentioned above, organizers can limit whether members of the family LLC can transfer assets outside the family. This prevents these relatives from making unwise financial decisions that deplete family wealth.

Guiding You and Your Family in Estate Planning

Family LLCs are just one component of a comprehensive estate plan. We can provide more details about the benefits of these LLCs and recommend other tools that can accomplish your personal objectives.