Limited Liability Companies (LLC) are important tools for small business owners. They can also be useful tools in estate planning, particularly if you have a high-net-worth or ultra-high-net-worth. This can help you pass assets to your children while minimizing estate and gift taxes. An LLC is similar to a partnership and a corporation. Like a corporation, LLC owners are protected from liability. They also have to report the company’s income and losses on their tax returns. LLCs have fewer fees and requirements than corporations. The company itself is held to fewer rules.
When passing on larger estates, an LLC can be a helpful tool to reduce certain gift and estate taxes greatly. The estate tax exemption is $12.9 million for individuals and $25.8 million for couples. Anything over this amount will be subjected to an approximate 40% tax rate. The amount someone can give away without tax is $12.9 million. These limits are expected to drop down to $5.49 million in 2026.
LLCs can be set up by the parents and give assets transferred into them to their children. If properly set up, LLCs can result in significantly less tax as opposed to outright gifts. When a family member moves something to a child through an LLC, it is taxed at a lower amount. For example, a $10,000 asset could be taxed as a $6,000 asset if transferred through an LLC. An LLC also has other advantages that protect assets from creditors. An LLC has many protections but does cost more and has more rules than a traditional estate plan. Due to their complications, consult with your local elder law attorney to help you get one set up.