Planning on how to administer your estate in order to ensure your preferred heirs receive what you want them to receive should be a priority for every adult who is starting to remotely approach retirement age. You will find there are numerous strategies available for you to choose from. One of the lesser-known estate planning tactics is the use of a Limited Liability Corporation (LLC) to administer the assets of your estate.
What is an LLC?
A legal entity used to protect members from personal liability, an LLC is recognized by the laws of all 50 states in the U.S. Each state has its own rules for the formation, operation, and taxing of LLCs. This type of business entity protects personal property in the case of lawsuits, debts, or other claims against the business.
LLCs differ from corporations because members have to follow fewer state regulations and the formalities required of corporations. Taxes are not levied on the LLC business entity but instead the members of the LLC will list business profit and loss on their own personal tax returns.
Advantages of using an LLC in estate planning
There are many benefits to choosing to utilize an LLC in planning for administration of your estate. Forming an LLC will allow you to reduce estate tax liability on inheritance to your heirs. You will also be able to distribute assets to your heirs while you are still alive without having to pay as much in gift taxes. An LLC for estate planning will give you more overall control over your assets.
Family LLC
One option for using an LLC in estate planning is through a family LLC. This type of LLC allows parents to keep control of the assets of the LLC while still allowing young children to possess shares in the LLC. However, the young children will not have voting rights and will not have the ability to make management decisions. Parents will be able to buy, sell, trade, or distribute LLC assets while younger LLC members are restricted and are not allowed to sell shares, withdraw from the LLC, or transfer membership.
This allows parents to protect LLC members from financial decisions made by younger and less experienced members. Although gifting shares in an LLC is subject to gift tax, there are considerable tax benefits to gifting in this fashion which enables you to give more. It will also help to lower the taxable value of your estate.
What can be transferred into an LLC?
Almost any asset can be transferred to a family LLC, allowing you to pass these assets to your intended heirs. The most common assets transferred to an LLC for estate planning include cash, real estate, personal possessions, and stocks. You can also use an LLC to transfer ownership of automobiles, fine art collections and many other types of assets.
Integrating an LLC into your estate planning strategy
Whether or not you should include an LLC as a part of your estate plan should be decided based on a complete analysis of your financial situation and what it is you want to accomplish with your estate plan. There are also other legal instruments which a comprehensive estate plan will need to be effective. We are happy to help answer any questions you may have.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Strategies mentioned may not be suitable for all individuals. Any opinions are those of the author and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making a decision. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected.