Thank you to Powell, Ohio attorney Matthew W. Gibson for today’s guest post:
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:
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.
transfers the rental properties to an LLC, he can take advantage of otherwise
unavailable (1) liability protection, and (2) gifting possibilities.
PROTECTION: If a tenant is injured on a rental property
and John was not personally negligent or otherwise responsible, only the LLC is
liable, and John’s house, savings account and brokerage account cannot be
reached by that tenant. John can even
shield the other rental properties from such claims if each of the rental
properties is placed into its own separate LLC.
Conversely, if John ever has creditors of his own, those creditors will
have a difficult time reaching the rental properties, especially if John gifts
interest in the LLC to his children.
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.
Matthew W. Gibson practices law in Powell, Ohio with Jones, Troyan, Pappas
& Perkins, 1472 Manning
Parkway, Powell, Ohio
43065; www.jonestroyan.com. He can be reached at (614) 888-8500