Including a Limited Liability Company in Your Estate Plan

A limited liability company (LLC) can own some of your bank accounts and property. For this reason, including a limited liability company in your estate plan can be a great tool. Doing so can protect the wealth that you’ve worked hard for.

limited liability company in your estate plan

What Is an LLC?

An LLC combines the advantages of a partnership or sole proprietorship with those of a corporation. In this business structure, the business can own bank accounts and property. An LLC is owned by members who contribute financially to the company. There can be a single member or multiple members.

The members’ assets are protected from any debts or legal actions against the LLC. For instance, if the LLC goes bankrupt, the member’s assets are not at risk. An LLC can own real estate, such as a second home or rental property. Furthermore, the LLC may own investments, cars, boats, planes, and equipment.

Benefits of Including a Limited Liability Company in Your Estate Plan

Asset Protection

The LLC is a separate entity from its members. For this reason, creditors cannot go after the members’ wealth. The protection an LLC offers is similar to that of shareholders in a corporation. Importantly, in some situations, such as when the members personally guarantee the LLC’s debts, the members’ personal assets could be at risk.

Probate Avoidance

The probate process only addresses the wealth owned at the time of death of a person, not a corporation. Therefore, anything that the LLC owns will avoid probate. However, if membership interest is in the decedent’s name, the transfer of this interest may still need to go through probate.

How An LLC Can Be Used in an Estate Plan

How It Works

Accounts and property are transferred to the LLC during your lifetime. As the creator of the LLC, you will be a member and can also add other members, such as a spouse or children. The LLC then becomes the owner of the accounts and operates as a separate entity from you. The LLC creates a level of asset protection. At your death, the only item transferred is your ownership interest in the LLC. The accounts and property owned by the LLC will continue to be owned by the LLC.

Operating Agreement

The majority of LLCs have an operating agreement. This agreement outlines rules for transferring a member’s interest in the LLC. Operating agreements should name all members and the percentage of ownership, settling conflicts, and what happens to each member’s interest when they pass. Moreover, any restrictions on the ability to transfer interest, such as transfer to a trust, must be included. An experienced business attorney can help prepare this operating agreement for you.

Trust Agreement

A trust agreement adds more protection. A member’s interest in the LLC can be transferred to a revocable trust. You can state in the trust that the membership interest be distributed to a beneficiary at your death or in the future. Since the trust will own the membership interest, transferring the membership interest will not require going through probate.

Practices for Using a Limited Liability Company in Your Estate Plan

There are some formalities needed for an LLC. For example, filing an annual report with the appropriate state government office is crucial. Furthermore, it’s essential to keep records of transactions and meetings that have involved the LLC.

Effective January 1, 2024, LLCs that meet the definition of a reporting company must file a Beneficial Ownership Information Report with the Department of the Treasury’s Financial Crimes Enforcement Network. The report includes information about all beneficial owners. Beneficial owners own 25% or more of the interest in the company. The information in the report consists of the name, address, birthday, unique identifying number, issuing jurisdiction, and a photo of the person’s ID. For reporting companies created after January 1, 2024, the company applicant must report this information as well. A company applicant is the person who files or controls the filing of the document that creates the entity.

Here at Law & Stein, we understand the importance of protecting what you have worked hard to earn. A comprehensive estate plan implements the right strategies to protect your wealth. If you would like to explore further how an LLC can help you plan for the future of your loved ones, contact us today.