LLCs can protect your assets and be a very powerful tool in advanced estate planning. Limited Liability Companies (LLCs) allow you to gain protection from hungry creditors and personal liability – while still allowing you to transfer assets down to your family members.
What Is an LLC?
An LLC is a type of business structure that has a mix of the characteristics found in both a partnership and a corporation.
LLCs are considered similar to a corporation, due to their limited liability feature, but come with the option of flow-through taxation (found in partnerships) – which allows income to only be taxed at the owner’s individual tax rate (i.e. the business pays no corporate tax).
- Can be used to pass assets down to your loved ones.
- Minimizes estate taxes
- Family LLCs allow your heirs to become shareholders, who can receive the benefits of the assets.
- LLCs can hold nearly any type of assets.
- LLCs can protect your assets.
How LLCs Protect Assets in Estate Planning
LLCs provide business owners with limited liability protection, which means that if you get into personal debt, a creditor cannot access any assets or funds owned by the LLC. The opposite is also true, where your LLC’s liability does not risk your own personal assets.
This is extremely useful for small business owners who are scared of the personal liabilities for debts in their business.
However, LLCs are not bulletproof and a creditor can still claim assets from the LLC if they successfully sue it. But, as previously mentioned, your personal assets would still be protected.
Note that timing is critical though. The LLC must be set up before any debt is incurred and created while meeting Florida regulations. You will also be required to provide ongoing annual reports – which from 2023 are about to get a lot more important (Guide to Getting Your Business Ready for the 2024 Corporate Transparency Act).
If your LLC has more than one member, the IRS considers it a partnership for tax purposes. However, if you want to have it treated as a corporation you will need to elect corporate status via Form 8832. But this will result in double taxation and additional formalities.
How Can I Form an LLC?
LLCs to protect assets are relatively simple to set-up, but there is still a lot of paperwork to complete and regulations to meet. Our LLC formation lawyers can help you every step of the way.
You must first:
- Choose a name
- It must comply with Florida naming rules and include ‘Limited Liability Company’ or the abbreviated ‘LLC’.
- It must be unique from other LLCs in Florida, or other trademarked names.
- Appoint a Registered Agent
- A registered agent must be appointed and named in the Articles of Organization.
- This can be a person or a business entity.
- The agent serves as a representative of the LLC and will accept legal documents on its behalf.
- File Articles of Organization
- These documents state the key details of the LLC, such as the names, addresses, registered agent, managers and date of the business’ creation.
- All LLCs in Florida must obtain an Employer Identification Number (EIN) while also keeping accurate annual reports.
What Are Family LLCs?
A ‘Family LLC’ is the term given to an LLC used for estate planning purposes. As a parent, you can use one to maintain control of assets while your heirs hold shares in them.
- You can transfer assets as soon as the LLC is established.
- Then you can translate the value of the assets into LLC units of value.
- Your loved ones can then receive transfers of the ownership of LLC units.
- Transferred shares count as ‘gifts’ under Florida’s gift tax laws, but can be discounted by up to 40%.
- After your death, your heirs could inherit your LLC ownership interest through your estate.
‘Pierce the Veil’
If the owners guarantee a personal loan to the LLC, creditors may also be able to go after personal assets in the event of a default.
Courts can also ‘pierce the veil, which means to blur the lines between personal assets and business assets – if the owner had been blending the two (such as depositing business revenue into a personal account or paying business bills with a personal bank check).
Further Protection
If you want to up the strength of your LLC asset protection, you have some options.
First, you don’t want to do anything that could pierce the veil – such as by making personal guarantees or signing loan papers without identifying yourself as a representative of the business. Establishing bank accounts to create a credit history is a good way around this to still have the ability to take out business loans.
It’s wise to ensure your books are well-maintained and free from personal and business fund blending. This may mean setting up business accounts to separate expenses.
Another option is insurance. An umbrella liability policy is a great tool at allowing the LLC to pay out if a negative court judgment arises.
Asset Protection Trusts
Asset protection trusts are a great alternative to using an LLC to protect assets. They must be created in advance and be irrevocable. Feel free to contact our Florida trust planning lawyers today for a free assessment to learn more about what’s best for you.
LLCs vs Partnerships
Partnerships are very common structures, allowing for two or more people to operate a business.
However, the partnership is not an independent taxable entity. All expenses, income and property are owned by the partners. It is their responsibility and there is no asset protection.
The IRS allows for operating costs to be tax deductible on profits only.
LLCs vs Corporations
Corporations are single entities, separate from its members. It can file lawsuits, be named in a lawsuit, make contracts, incur debts and pay taxes.
But the members are not liable for the corporation’s liabilities or obligations. But the big difference between an LLC and a corporation is that there is no option for flow-through taxation; both the corporation and the member are taxed separately.
What Assets Are Protected by an LLC?
LLCs protect any personal assets, such as personal bank accounts, real estate or personal property from being claimed by claimants coming after the business.
However, an LLC does not shield its members from unpaid payroll taxes. These taxes must be paid on wages, salaries and tips by all employees.
Contact a Pinellas County LLC Formation Lawyers
If you’re looking to protect your assets with an LLC or trust, then our Pinellas County LLC formation lawyers can help. We regularly help Floridian families make water-tight and future-proofed estate plans using advanced techniques such as LLCs, so their wealth stays in the family for generations.
Free Assessments
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced attorneys, they can help you start and complete the probate process or tackle any probate litigation issues.
Schedule a free assessment today to get started or to get any questions answered.
