Limited liability companies (LLCs) are typically thought of in the context of business formation, but they can also be a valuable tool in estate planning. To understand how the use of an LLC might work in estate planning, consider the following hypothetical:
A 55-year-old individual, who we will call John, owns a house worth $500,000, has $1,000,000 in a savings account, has $2,000,000 in a retirement account, and owns five multi-family rental properties, each worth $300,000. John has three children who are between the ages of 15 and 25. He would like his children to inherit his estate and eventually take over the rental properties, but John is not ready to pass control of the rental properties onto them just yet.
- GIFTING POSSIBILITIES: John should consider transferring non-managing membership interest to his children. A careful gifting plan can (1) allow John to control the rental properties until he wishes to pass managing membership interest to his children, and (2) save John’s estate up to $800,000 in federal and Ohio estate taxes.
There are a number of other benefits to LLCs, including management flexibility and lower income taxes as membership interest is transferred to children in lower tax brackets. As a rule of thumb, anybody concerned about federal estate tax or business/investment succession planning should talk with an experienced estate planning attorney about the use of LLCs.