How Might An LLC Be Used For Estate Planning?
An LLC is a business entity, much like a corporation, a partnership, or a limited partnership. A business entity will have a bank account, assets, and a business purpose. The LLC will have managers of the business and the owner of the LLC. The owners are typically called members. With respect to estate planning, an existing LLC, would need to address who would become the new owner of the LLC upon an owner’s death. The owner of the business can dictate the business purpose and select people to run the business, and is entitled to all dividends and profits from the business.
If you’re seeking and considering creating an LLC as part of your estate plan, it typically fits into the discussions relating to asset protection from creditors and taxation. The creation of new LLCs for estate planning reasons is typically done by estate planning attorneys who focus their practice on serving entrepreneurs, investors, and business owners in terms of tax code and asset protection.
What Types of Assets Can An LLC Hold?
An LLC can own assets, much like an individual human being can own an asset. An LLC can be created for the purposes of owning of real estate. The LLC can also own and create bank accounts and investment accounts. Furthermore, the LLC can own personal property assets and title of personal items can be transferred to the name of the LLC. The LLC can own basically any type of property, including intellectual property and royalties. It can function just like an ordinary human being, who would own assets individually.
Does An LLC Go Through Probate?
Whether or not an LLC goes through probate depends on who the member is. In an LLC, the member is equivalent to a shareholder of a corporation. If the member and the membership certificate states that the owner of that certificate is an individual and that individual dies, then probate court is needed to transfer ownership of that membership certificate to the rightful beneficiaries under the terms of a will. Or, if there is no will, under the terms of Florida intestate law. As part of any probate administration of an LLC, there are additional court requirements and requests that need to be made as it relates to the continuation of that business.
What Happens To An LLC When One Member Dies?
When an LLC member dies, the LLC operating agreement is the first place to look to see what happens to that LLC membership interest. The next place to look, in absence of an operating agreement, is the Florida LLC laws. The LLC will typically have an operating agreement that addresses what happens to that member’s interest, which is negotiated as part of the business formation. It is commonplace that the remaining LLC members can buy out the deceased member’s interest, so that the deceased member’s family does not have operating power or authorization to affect operations.
Typically, the LLC operating agreement will state that the LLC or other members can buy back at a certain valuation, which may require a business valuation to determine the price. In the absence of provisions regarding buyout of other members, the terms of the deceased member’s will would govern who receives that LLC membership interest. Once that family member receives the LLC membership interest, then that member will have rights afforded to other members under the LLC laws and subject to the terms of the operating agreement. The best way to address these issues is working with a business law attorney and an estate planning attorney.
Can An LLC Avoid Probate When It Comes To Out Of State Property Owned?
An LLC cannot avoid probate of an out-of-state property. An LLC membership interest is considered personal property and personal property is governed by the laws of the state where the person resided at death. If you are a Florida resident creating a Florida LLC to own a North Carolina cabin, then upon your death, the cabin LLC would still be in operation, so any kind of rents can be still paid to the LLC. However, control, ownership, and benefit of those rents will be missing without a transfer of the membership interest to your beneficiaries under your will.
The proper structure to avoid probate of an out of state property includes a living trust. If you use a living trust to own the property, however, you don’t get the asset protection and potential tax benefits or have other co-owners. A solution would be to create the LLC for the out of state property, with the LLC membership interests being owned by your living trust in order to avoid probate after your death.
For more information on Using An LLC For Estate Planning In Florida, an initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (904) 398-6100 today.
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