Establishing a family LLC is not new, but it is gaining speed as high-income earners seek ways to protect their hard-earned assets and develop generational wealth. Baby boomers have the highest household net worth of any US generation before. Defined by the Federal Reserve as being born between 1946 and 1964 – between the ages of 59 and 77 – baby boomers are now in early retirement or the end of their careers. Now, they explore ways to protect their assets and pass down wealth to future generations with wealth management and long-term estate planning.
As Baby Boomers look to transfer assets to their children, grandchildren or other family members, they worry about the impact of gift taxes and the debt of estate taxes your beneficiaries will owe after inheritance. A family LLC is used for estate planning to protect assets from tax liabilities and keep earnings within the family. But, family LLCs can offer benefits to high-income earners long before death.
Provide Financial Protection
LLCs are often used for estate planning because they legally protect members from personal liability in the case of debt, bankruptcy, lawsuits or other claims. They shield assets like homes, cars, personal bank accounts and other investments.
Reduce Estate Tax Liabilities
A family LLC is an effective estate planning method that reduces taxes your children owe on the inheritance you leave behind. Better still, they decrease owed gift tax for the inheritance you offer children while you live.
Maintain Asset Control
Once you establish a family LLC, you maintain control. Even though your children or grandchildren hold shares in the LLC’s assets, they don’t have voting rights to change your wealth management plan. This allows you to freely buy, sell, trade, or distribute assets. Other members are restricted from selling LLC shares, withdrawing from the company, or transferring their membership elsewhere.
Therefore, the parents keep control over the assets and can protect them from financial decisions made by younger members. Gifts of shares to younger members do come with gift taxes. However, significant tax benefits let you give more while lowering the value of your estate.
As the family LLC manager, your children are non-managing members. The value of units transferred to them can be steeply discounted—frequently up to 40% of their market value—because LLC units become less marketable without management rights. Because you can discount the value of units transferred to your children, you can gift beyond the current $15,000 gift limit without paying a gift tax.
Family LLCs aren’t for everyone but can benefit high-income earners by protecting their assets and preserving family wealth for years. If you want to discuss establishing a family LLC, call us. We can discuss the right solution for you and your family.