If you’ve been worried about leaving your assets vulnerable to predatory lawsuits, creditors, and other risks, you’re not alone. That’s one of the biggest concerns drawing so many Americans to estate planning these days. The problem that so many people have, however, is that they often end up failing to match their actual concerns with the right solutions. As people seek out free and low-cost estate planning tools on the internet and elsewhere, they often fail to understand that these tools rarely provide the asset protection they’re seeking. You should seek professional assistance in these matters, since legal experts are the most adept at creating strategies that can truly safeguard your assets. And when it comes to asset protection, your estate plan can always benefit from LLC limited liability.
What Is an LLC?
If you’ve heard of the LLC, then you probably recognize it as a common business structure. The Limited Liability Company, or LLC, is a specific way of organizing assets so that your liability is reduced. That effectively protects your personal assets so that they are not placed at risk from creditors, lawsuits, or bankruptcy. Though the LLC is a more recent statutory creation, it has come to be one of the more commonly-used business asset protection tools in recent years.
In business, the LLC serves to separate your business interests from your personal assets. That separation provides a legal wall of protection to ensure that your personal assets cannot be reached by creditors and others who initiate actions against the LLC. This corporate structure also provides a few key tax controls that can benefit your personal estate.
LLC Benefits
It is important to understand that the LLC is a truly flexible tool that you can use to benefit you and your family. In the estate planning context, you have the option of structuring ownership and management of the LLC to your own specifications, but using the right provisions within your LLC operating agreement. You can have it structured to share management functions or simply have a single manager having its affairs. So, for example, a typical LLC set up for the family’s benefit might see the parents designated as managers of the organization, with their children services as partners without management responsibilities. That operational structure allows those parents to retain some control even as they slowly transfer certain assets to their heirs.
There are options for establishing class distinctions between different member types as well. That can allow some members to enjoy greater membership and voting privileges than the managers. Transfers can be made with restrictions – providing parents a way to ensure that the wealth they pass on remains in the family rather than with a child’s future ex-spouse. It can also be used to prevent the sale of any member’s estate shares.
There’s tremendous flexibility when it comes to how profits are distributed too. Rather than being doled out on an equal shares basis or in accordance with ownership percentages, you can distribute those profits as you wish. That can be a tremendous benefit when manager parents want to transfer more of their wealth to their heirs while avoiding the complications that other transfer options often present.
By keeping these assets within the LLC, the parents can enjoy estate tax benefits that accrue from the removal of wealth from the personal estate. That may not seem like an important benefit to people with more modest estates, but for anyone with substantial holdings, it can potentially result in enormous estate tax savings.
Guarding Against Incapacity and Loss
Because the LLC is effectively a business structure, provisions can more easily be made for ensuring that it remains operational even when managers are incapacitated. That can be an important benefit since it ensures that there is always a designated person assigned to take over operation of the organization when the worst occurs. It can enable your family to avoid the need for a drawn-out guardianship proceeding, and can even minimize the importance of having other incapacitation tools like power of attorney. Alternatively, it can help to keep personal and business interests separate during incapacity by enabling parents to use their power of attorney designations to empower someone to manage their personal financial interests, without giving that agent-in-fact access to the LLC’s assets.
Who Needs an LLC?
While it is often assumed that LLCs are only beneficial for people with major business interests, that is simply not the case. The fact is that the LLC structure can be used to assist and family with even moderate holdings, and can often be every bit as effective as a trust when it comes to things like asset protection. In many ways, it provides even greater flexibility than a trust, since it can include succession planning to ensure that assets are transferred over time even while the person who created the LLC remains alive and well.
As for types of assets that can be transferred into your LLC, they include virtually and type of asset you might own. You can transfer bank accounts, stocks, bond, gold and other precious metals, and most kings of property. That means that the LLC can perform many of the same functions as a trust.
Obviously, these are complex issues that you should seek help with to ensure that you don’t make costly mistakes. To that end, an experienced estate planning attorney can be an invaluable resource for meeting your organizational goals.
At Frank & Kraft, Attorneys at Law, our elder law and estate planning lawyers understand just how confusing asset protection can be within any comprehensive estate planning effort. Whether you own a business or simply have substantial assets that need to be safeguarded, you need effective strategies to protect your wealth from all the forces that seek to disrupt your financial harmony. We’re proud to provide those strategies to individuals and families in our area, and look forward to helping you to reap the benefits that LLC limited liability can provide. If you’d like to find out more about how these options can benefit your estate planning efforts, contact us at our website or call today at (317) 684-1100.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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