A Family Limited Liability Company (FLLC) can be an effective tool for protecting your family’s assets from creditors. The FLLC can allow you to maximize your family’s net spendable income while also provide you with estate planning options.
What is a FLLC?
The FLLC is a form of business or investment entity ownership, which is generally created to provide its owners with significant protection from creditors and potentially substantial estate and gift tax savings. It usually involves several owners who are related to each other and it operates under a restrictive operating agreement that outlines the terms upon which the FLLC will do business.
How does a FLLC work?
The most common arrangement involves a senior member creating the FLLC and serving as the Managing Member. Children and grandchildren can be named as Members of the FLLC, but without any management authority. Typically, the senior member funds the FLLC with money, real property, stocks, bonds, artwork, or other assets. Percentages can be assigned to each Member (children or grandchildren) with discounts being allowed as to the valuation since they are receiving a minority interest (without any control authority over the FLLC). Each party’s contribution to the FLLC determines liability for debts. Additionally, the FLLC provides significant flexibility since ownership shares can be modified as your family or business changes.
What are the benefits of a FLLC?
A FLLC can allow you to shift or reduce income tax and estate tax liability among generations in the family. The FLLC is often treated as a partnership for income tax reporting, with flow-through taxation, which means the profits and losses of the entity are passed through pro rata to the members. Using a FLLC for estate planning purposes allows you to reduce the size of the senior member’s estate and contributions to the FLLC are not taxable events, while also providing asset protection from lawsuits against the individual members of the family.
By transferring ownership to multiple owners through the FLLC, creditors of any member are unable to force a dissolution of the business entity and their remedies are restricted to obtaining a “charging order” which provides only that the creditor receives distributions when the members receive distributions. Since nothing requires that a FLLC distribute profits, it is not very beneficial to the creditor. Thus, the FLLC provides a distinct benefit for asset protection purposes.
The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.