A limited liability company is a legal business entity that protects its owners (members) from personal liability. It provides more flexibility and is less formal than a corporation. Members of an LLC report the business’s profits and losses on their individual tax returns much like a partnership. While LLCs are typically utilized in the business world, family limited liability companies are often utilized in estate planning.
A family limited liability company is typically created by parents. Within the operating agreement, the parents have a majority membership interest and maintain voting rights and management of the company. Children and/or grandchildren hold some membership interest in the company but initially do not possess voting or management rights. The parents can transfer cash or property into the limited liability company while maintaining control. Over time, the parents can gradually transfer membership interest to children and/or grandchildren as they see fit. The acting manager may discount the value of the membership interests due to the fact that the membership interests are less marketable without management rights. The goal is to allow beneficiaries to receive their inheritance in advance while reducing the tax burden.
Contact an attorney at Paulson & Paulson, PLC today to discuss the possibility of utilizing a family limited liability company in your estate plan.