Can a Limited Liability Company LLC accept a cash gift?

Answer 1

A family Limited Liability Company has great potential as an estate planning device to

reduce the Federal Estate and Gift Tax by as much as 40%. Although most people hear about Family Limited Partnerships ("FLPs"), a Limited Liability Company ("LLC") may actually be the better choice. However, either of these entities allow people to make gifts, avoid paying Federal Estate and Gift tax and maintain control. In addition to the tax savings, an LLC, unlike an FLP, can provide the entire family with asset protection. An FLP or an LLC is only really needed as an estate planning technique if a person's estate exceed $2,000,000, if single, and $4,000,000 if married. This is because as of 2008, each individual person has an estate tax exemption which allows him or her to pass $2,000,000 tax free upon death. If your estate exceeds this $2,000,000 per person exemption and you do not want your beneficiaries to pay a 48% tax, an LLC or FLP must be considered.

Making Gifts and Maintaining Control

While most people are aware that they can make tax free gifts of $12,000 each year, few people can afford to give away large sums of cash. For those who have the cash to give, they often have concerns that the money would be wasted. An LLC or FLP provides a solution by allowing parents to make gifts of property while continuing to maintain control over the assets gifted.

An LLC is usually started with parents transferring property, such as rental property or stock, to an entity in exchange for ownership "shares". The parents would then be the owners of the LLC shares rather than the underlying assets. This ownership structure allows the parents to gift interests in the LLC, instead of the underlying assets. While children and grandchildren receive valuable LLC shares, such shares do not need to have any management or voting rights. The parents, as Managers, remain in sole control of the affairs of the company. In addition, to limiting voting rights, the shares in the LLC can be restricted so that children or grandchildren cannot sell their interest in the LLC without first obtaining consent and / or offering it to the parents.

While most parents choose this two tiered structure to maintain control, gifting shares that lack management or voting rights can actually achieve a estate / gift tax savings of more than 40%. Shares that have no voting or management rights are clearly less valuable than voting shares and are usually given a 40% discounted value. Because the Federal Estate and Tax is based on the fair market value of the property given, this reduction in value (known as a "discount") will also reduce any estate or gift tax that may be assessed on the transfer. This discount effectively allows a person to give 40% more property each year tax free. Thus, the $12,000 annual tax free exemption that each of us have can be used to completely shelter a gift of an interest in an LLC, even though the underlying assets are actually worth about $20,000. When these gifts are made each year to each child, and maybe grandchildren, the savings over the years can be astronomical. Keep in mind that the Federal Estate tax is assessed on the fair market value of all property owned upon a person's death. By transferring wealth to children and grandchildren during life, not only are the assets removed from your estate tax fee (so they will not be subject to the 48% estate tax) but so is the future growth of the assets.