110 Cedar Street, Suite 250, Wellesley Hills, MA 02481

110 Cedar Street, Suite 250, Wellesley Hills, MA 02481

The Use of LLCs in Estate Planning

How can establishing a family LLC ensure that your loved ones will benefit as much as possible from your estate?

There is no question that you have worked long and hard to earn a living and acquire your assets.  Therefore, it is only natural to be concerned about passing your assets onto loved ones after you die. If you are seeking to transfer some assets during your life and to reduce gift and estate taxes as much as possible, a family LLC (limited liability company) might be the right choice for you.

An LLC is a legal entity, usually created in the business context, that offers its owners or members shelter from personal liability. LLCs are similar to corporations but are subject to less regulation and are, therefore, more flexible. Once an LLC is established according to state law, assets such as cash, real property and personal property can be transferred into it. The LLC can then be used for estate planning purposes.

A family LLC is usually set up with the parents as controlling or managing members and the children, grandchildren or other loved ones as members with limited rights. Because certain members have limited rights, the controlling members are able to transfer LLC units, which are similar to shares of stock, to the other members at a discount. This effectively allows the managing members to transfer their assets to their loved ones during their lifetimes. It also results in a reduced number of gift taxes. By making transfers during their lives, the managing members are spending down the assets that make up their estate, thereby increasing the chances that they will fall under the amount of the federal estate tax exemption, which is $11.4 million. In other words, using lifetime transfers, managing members can reduce their estate to an amount that is less than $11.4 million and avoid paying any federal estate taxes at all.

While family LLCs are commonly used in larger estates, they can be beneficial to anyone seeking to reduce taxes and make lifetime transfers. An experienced trusts and estates attorney can evaluate whether a family LLC should be used in your situation.


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