In the video below, Morris Law Group's founding partner, Stuart R. Morris, Esq., CPA, B.C.S. discusses some crucial information you need to know if you are seeking to hire an estate planning attorney soon. For more information about Morris Law Group or Stuart R. Morris, please visit https://law-morris.com or call (561) 750-3850.
Friday, June 19, 2020
The Key Benefits of an Investment LLC
An Investment Limited Liability Company (LLC) is a unique estate
planning technique that Morris Law Group uses to provide clients with protection
from creditors. An Investment LLC is a
multimember holding company whose primary purpose is to own non-qualified
investment accounts in a manner that is protected from creditors. Since the LLC
has more than one member, a personal creditor of any individual member cannot
attach the LLC’s assets. Additionally, our client maintains control over the
underlying investments (buying, selling, etc.) by acting as the manager of the
LLC. Please watch our video below on Investment LLCs by Morris Law Group founding partner Stuart R. Morris, Esq., CPA, B.C.S.
Florida Requirements
In order to form an LLC in Florida, you must file the
Articles of Organization with the state. This document lists the name of the
LLC, its address, and the names of the managing members. You also will need an
Operating Agreement. This sets up how the LLC will function, specifies the
requirements of the members, determines how new managers are chosen, details a
succession plan, and so on, but unlike the Articles of Organization, the
Operating Agreement is private.
Tax Considerations
Investment LLCs are typically taxed like partnerships and
are pass-through entities. This means that the tax that the LLC owes is passed
through to the members. This sounds like it could be costly, but it actually provides
a better result than being taxed as a corporation. Unless it is taxed as an S
Corporation, corporations are taxed at the corporate level and then the
shareholders are taxed on distributions, resulting in two taxes instead of one.
However, it is important to note that LLCs can elect to be treated as a
corporation (including as an S Corporation) for tax purposes if the members
desire.
Married Couples Can Equalize Estates
In addition to the asset protection benefits, the Investment
LLC also provides married clients the ability to equalize their estates better for
estate tax purposes. In cases where one spouse owns the majority of the assets,
their estates can be equalized by transferring such investment accounts to an
investment LLC owned equally by each spouse. Furthermore, because all
investment accounts will already be titled within the LLC, none of the accounts
need to be retitled upon a client’s death (only the interest in the LLC needs to
be retitled) resulting in significant savings on post-death administration
costs.
Gifting Benefits
Lastly, Investment LLCs also provide significant upside in
the event a client wishes to make gifts to trusts for the benefit of their
descendants, as it can lead to a valuation discount. Consider the following
example where Jim owns an investment account valued at $10 million. If Jim
gifts $1 million from the account directly to his daughter, Heather, it will
result in a gift of $1 million. However, if instead, Jim owns the $10 million
investment account within an Investment LLC, and gifts a 10% interest in the
LLC (actual value of $1 million) to Heather, a valuation discount for lack of
marketability and control (that can exceed 20%) can be applied to the transfer,
resulting in the gifting of a $1 million asset while only utilizing
approximately $800,000 of Jim’s estate tax exemption.
For more information on this specialized planning technique,
please contact
us or call Morris Law Group at (561) 750-3850.
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