Did you know that a family-owned LLC can be a helpful instrument for managing various assets and enabling them to be passed along to other family members? Assigning oneself as manager of the LLC means that you can maintain control over your estate while providing notable tax advantages.
Regulations that govern LLCs differ from state to state and often change over the years, so it is wise to consult with an attorney or a financial advisor prior to formalizing a plan for your LLC.
Legal assistance is extremely helpful when it comes to estate planning as well as during LLC formation.
Many people own a cherished beach vacation home or a family cabin used for special getaways. Often families relish the idea of keeping the fond memories going for generations to come – sharing and passing such a special memorable place on to the children. Regrettably, sometimes the prospect of having multiple owners of a property can lead to difficulties concerning percentage of ownership, inheritance rights, and planned use of the asset(s). Partition actions can impair the original intended goodwill, especially when the multiple ownership rights involve several generations.
In the likelihood of any disputes amongst the property owners—such as if one or more of the future owners no longer wish to own a share of the family place, is unable to afford paying for the upkeep of the property, or wishes to leave their share to a new spouse—or needs money and begins to resent that the value of the property cannot be drawn from—if the ownership is administered solely by law such disputes may be eased via the rights expressed in the LLC.
A Family LLC May Help
In normal business activity, a limited liability company (LLC) s a legal entity similar to a corporation whereas LLC owners (referred to as members) are safeguarded from personal liability in the case of lawsuit, debt, liens, or other claims – thus protecting personal property such as a primary home, automobile, personal bank account, or business investment. LLCs are recognized in every state, but individual states have their own regulations governing the formation and taxation of them.
A family LLC structure that is properly drafted can address a multitude of potential property ownership issues. It allows for a vehicle to establish protocols and rules for current and future family-member owners.
What does one need to set up a Family LLC?
First, decide who the lead owner(s) are. Typically parents will maintain management of the LLC, with the children or grandchildren holding shares of the assets – but not having voting rights. The parents may buy, sell, distribute, or trade the assets of the LLC. Members are limited in the options to make withdrawals, sell LLC shares, or perform transfers. This way, parents continue oversight to protect all other members from the financial decisions made by the younger members.
Next, establish the rules regarding limits on transferability of the LLC assets in relation to the LLC members. This means to denote whether spouses or others who are not directly related can become members or not – and who may inherit or transfer shares during their lifetimes or upon the death of a member.
Decide upon a management or governance method for the LLC. This entails denoting the conditions and circumstances for which a member may transfer shares, terms of sale of property, and member termination as necessary. It will be ideal to document rules for valuation, property maintenance, improvements, and establishing provisions in the event that a member fails or refuses to uphold financial obligations.
Implementing an LLC for Estate Planning does have some benefits.
Establishing a family LLC with the children and future descendants in mind helps to maintain property and other assets for generations ahead. It can essentially reduce the estate taxes that children may be required to remit upon inheritance. Parents can determine how to convey the market value of assets into LLC units of value – much like stock in a corporation – and can transfer ownership of LLC units to children or grandchildren as desired.
An LLC allows for the distribution of inheritance to children during one’s lifetime, while still maintaining control over the assets and without higher gift taxes. Almost any asset can be placed in an LLC and allows heirs to become shareholders, who can then benefit from the assets held by the LLC as a useful legal structure through which to pass assets down to other loved ones.
Be sure to implement a rule that determines how an LLC dissolution vote is to be taken, and exactly how any assets of the LLC are to be disbursed. Decide in advance how the provision will be managed or activated in order to avoid lengthy family disputes or legal issues.
At The Floyd Law Firm PC, our firm is committed to helping families make educated decisions concerning legal agreements, Estate Planning, Wills, Trusts, Probate, and other important life events. We work as a team when solving problems involving financial legal concerns and Family Law situations. We understand that the outcome of family decisions can affect you and your loved ones for years to come.