Limited Liability Company (LLC)/Series LLC: This type of estate planning allows you to consolidate management of multiple investment assets (real property and personal securities) into a single entity or series of entities and can provide the assets owned by the LLC with “lack of control discounts” and “marketability discounts” (substantially reducing the taxable value of your investment real estate, investment portfolio, and any future business holdings) at the last of your deaths. This form of ownership allows you to make gifts of “interests” in the LLC each year to your children as LLC members at a substantial discount off of actual value. Restrictions normally are incorporated into the Operating Agreement to limit a member’s ability to sell his or her interest or to withdraw from the LLC and take his or her capital contributions out. Liquidation of the LLC would also be restricted to a unanimous vote of all members. It will also permit you to “freeze” the growth of the gifted interests in the LLC by having that growth inure to your children’s shares of the LLC and not to you or your spouse. Presently, the IRS has been conceding substantial discounts to a decedent’s estate on the value of assets that have been held by a properly structured and maintained LLC. An initial Operating Agreement would be created by you and your Trust, and after LLC interests have been assigned to your children, an Amended Operating agreement would be prepared, which would include your children as members.
Additionally, the LLC is an effective asset protection vehicle because your creditors can never become a member of the LLC. If the creditor did sue the LLC and won, they would only receive something called a “charging order.” They still cannot use the LLC assets, make any decisions related to those assets, or force you to sell them. This is due to the restrictive language of the “Operating Agreement.” The charging order would entitle them to a proportionate share of income or principal, should you decide to make any distributions, (which you wouldn’t). We have found that most creditors or suing parties don’t want charging orders, because it gives them nothing but a potential tax liability. As far as the IRS is concerned, the party holding the charging order is liable for its proportionate share of the income earned by the LLC assets even though it never received any income distribution! There would be fees to your accountant for annual tax returns and annual fees to the Secretary of State, however, the potential for hundreds of thousands of dollars in savings are well worth it. If you own rental property or have an estate that may be subject to estate taxes, the attorney’s at Kiselstein Franckowiak Law Group will be able to advise you if an LLC or Series LLC can be an effective estate planning tool to protect your assets from lawsuits and reduce the size of your taxable estate.