💎 LLC in Your Estate Plan

What is a Limited Liability Company (LLC)?

An LLC is a business structure that allows for the ownership of various types of property and accounts. It is made up of members who contribute assets, such as money or property, to the company. An LLC can be formed with a single member or multiple members. When there are multiple members, the management can either be handled collectively by the members or by a designated manager.

What Can an LLC Own?

While an LLC is typically associated with operating a business, it can also hold various types of assets:

• Real Estate: An LLC can own properties such as vacation homes, rental units, or long-held family estates.

• Investments: An LLC may be established to pool investments from several people, allowing for greater capital and investment opportunities.

• High-Value Assets: The LLC can own assets like airplanes, boats, or other expensive and high-risk items.

Why Should You Consider Using an LLC in Your Estate Plan?

Asset Protection

An LLC functions as a separate legal entity, meaning its liabilities generally do not affect the personal assets of its members. In most cases, creditors of the LLC cannot pursue the personal property of the members to satisfy the LLC's debts. However, in some states, single-member LLCs do not offer the same level of protection from personal creditors. In these cases, creditors may have the right to claim assets owned by the LLC, as there are no other members to be impacted.

Avoiding Probate

Assets owned by the LLC, whether transferred during your lifetime or upon your death, avoid the lengthy and costly probate process. Probate only applies to assets that are personally owned at the time of death. Since the LLC holds ownership of the accounts and property, those assets won’t need to go through probate. However, the transfer of your membership interest in the LLC may still need to go through probate unless it is specifically planned for.

How Can an LLC Be Used in Estate Planning?

How It Functions

You can create an LLC and transfer ownership of various accounts or property to it. You may also designate the LLC as a beneficiary of these assets. During your lifetime, you are a member of the LLC, which means you hold an ownership interest and may be involved in its management. If you're married, your spouse can be a member as well. Other individuals can join the LLC as members either during its formation or later. It’s important to be aware that transferring ownership interests could trigger gift tax consequences if the new members don’t contribute assets of their own to the LLC.

Operating Agreement

An LLC typically operates under an agreement that sets forth rules for its management and the transfer of membership interests. If you don’t yet have an operating agreement, or if your existing agreement needs to be updated, it’s a good idea to consult with a business law professional. Key provisions should include:

• The members and their ownership percentages

• Procedures for resolving conflicts among members

• Restrictions on transferring membership interests (including transfers to a trust)

• How a member’s interest is handled upon their death

Trust Agreement

To add another layer of protection, you can transfer your membership interest in the LLC to a revocable living trust. This would allow you, as the creator, trustee, and beneficiary, to continue managing the LLC as a trustee. Since the trust owns the membership interest, it avoids probate. After your death, the trust can retain ownership of the membership interest, and a successor trustee can step in to manage it, following the instructions you’ve left. Alternatively, you can specify that the interest be passed on to a named beneficiary.

Best Practices for Using an LLC

To ensure the benefits of an LLC are fully realized, it’s crucial to maintain its status as a distinct entity. This means adhering to various formalities, such as:

• Filing required annual reports with the state

• Pending Beneficial Ownership Information Report (BOI)

• Keeping separate records for LLC transactions

• Avoiding mixing personal and LLC finances