(PRWEB) December 16, 2013
Pozzuolo Rodden P.C., Philadelphia Estate Planning Lawyers, announces the release of "The Family LLC As An Advanced Estate Planning Tool". If you would like to read other estate planning or business law topics please visit our web site: http://www.pozzuolo.com
A family LLC is like other LLCs except that it involves that particular family – the LLC is owned and managed by the family and the LLC assets are familial assets. It is an advanced estate planning tool and, depending on the family's estate planning needs, it may be the ideal vehicle for them to transfer their wealth to their children and younger generations.
A family LLC may provide numerous benefits to high-net worth individuals, business owners and their families. The benefits range from business and non-tax advantages to clear-cut tax savings.
Business and non-tax advantages.
A family LLC allows for various business and non-tax advantages including:
A family LLC also provides for various tax savings including:
A family LLC is structured similarly to other LLCs. The LLC is “owned” by members and may be managed either by the members or by managers who are appointed by the members. The LLC is registered with the state and there is an operating agreement which states who will control the LLC and make decisions over the assets. The LLC offers its members limited liability, similarly to corporations, but also provides for flow through taxation like partnerships. Thus, income is taxed to the members rather than to the LLC.
In the common family LLC setup, parents transfer business or investment assets, such as rental properties or traded securities, to the family LLC and, in exchange, take back membership interests. The transfers are generally tax free. Usually, there is an operating agreement which will name the parents as managers who make all the decisions regarding investment, management, and decisions over distributions to members. Meanwhile, the parents may gift membership interests in the family LLC to their children or grandchildren. In this way, the parents remain as managers of the family LLC, again, retaining control and making all the important decisions over the assets, while the children or grandchildren become owners.
Parents may make annual gifts to the younger generations of the family LLC interests. Furthermore, they can take advantage of the annual gift tax exclusion so that these gifts incur no gift tax. Because of the valuation discounts, the parents can actually make transfers whose value is more than the annual exclusion amount but, nonetheless, will not cross the tax threshold.
Within the operating agreement of the family LLC, parents can exercise even more nuanced control over the assets. The key is that the operating agreement require be drafted to require manager approval over the family LLC activities. For example:
It is clear that the family LLC can be a useful tool in estate planning which allows for total family involvement but parental control, and various tax savings. However, the family LLC is not an appropriate estate planning tool for every family. Generally, it is useful for those individuals and families who have substantial wealth or have a family business they wish to pass on to younger generations in a controlled and managed transfer. Essentially, the family LLC is an advanced estate planning tool that should be considered only after you have completed other more basis estate planning techniques.
Contact our Philadelphia Estate Planning and Business Law Firm with your questions, comments or concerns.
Pozzuolo Rodden, P.C. provides specialized cost-effective legal services to privately held business owners and high-net-worth clients in Pennsylvania and New Jersey in excess of 35 years.
Practice Areas: Business/Corporate Litigation | Business/Corporate Law | Estate Planning and Estate Administration; Estate Litigation | Real Estate | Employment Law | Tax & Pension Law
Pozzuolo Rodden, P.C.
Counselors at Law
2033 Walnut Street
Philadelphia, PA 19103