Congratulations on your real estate investment! But before you sit back and enjoy the world cup with a bowl of popcorn; consider how types of ownership structures can play a key role in meeting your financial goals.
In Florida, some common real estate investments structures include; Partnerships, Trust (Grantor Trust and Land Trusts), S Corporations (S Corp) and Limited liability companies (LLC’s). With the growing popularity of LLC’s in Florida, it is important to know how structuring your investments through LLC’s can affect your wallet.
What is an LLC?
An LLC is a legal entity recognized in all 50 states. Like a corporation, LLC owners (called members) are protected from personal liability in case of a lawsuit, debt, or other claims, thus protecting personal assets such as a home, car, personal bank account or other investments. Unlike a corporation, LLC members can manage the LLC in any way, and are subject to less “red tape” than a corporation. Like a partnership, owners of an LLC report the business profits and losses on their personal tax return, instead of the LLC itself being taxed as a business entity.
LLC’s in Estate Planning
In a family LLC, the parents maintain management of the LLC, with children holding shares in the LLC’s assets, yet not having management or voting rights. This enables the parents to trade, buy, sell, or distribute the LLC’s assets, while other members are restricted in their ability to sell their LLC shares, withdraw from the company or transfer their membership in the company. This way, the parents maintain full control over the assets and can protect them from financial decisions made by younger members. Gifts of shares to younger members come under the gift tax, but with significant tax benefits that allow you to give more, and lower the value of your estate.
What can be transferred Into an LLC?
You can transfer almost any asset into an LLC, and then move those assets along to your children and grandchildren. Assets typically include:
- Property – you can transfer title to realty and structures built on the land into your LLC.
- Cash – you can transfer money from your bank accounts into an LLC, and then distribute it amongst the LLC members.
- Personal possessions – you can transfer ownership of cars, stocks, expensive jewelry, artwork or other personal assets into your LLC.
A family-owned LLC can be an effective tool for managing your assets and passing them along to your children. You maintain control over your estate by assigning yourself as manager of the LLC, while providing significant tax benefits to you and your children.