Business Entities
How to protect your business, your assets, and your kids, without losing sleep at night.
Having trouble sleeping at night because your business or assets may be seized in a lawsuit? Would you like to pass assets to the next generation, but still maintain control? A business entity such as a limited liability company (LLC) or a limited partnership (LP) may be a good fit for you and your family. Read more here..
Business Entities
Business entities such as a family limited partnership or limited liability company are commonly used during estate planning for organization, management, asset protection, and leveraging federal transfer tax purposes.
How are Business Entities Used in Estate Planning?
For large estates, families involved in a business, and service professionals, using business entities as part of their estate plan provides important benefits.
Here are examples of estate planning entities:
- Sole Proprietorship (not really an entity, but its existence is important for discussion with your estate planning attorney)
- Limited Partnership
- Family Limited Partnership
- General Partnership (not really an entity, but its existence is important for discussion with your estate planning attorney)
- Limited Liability Companies
- Family Limited Liability Companies
- S Corporation
- C Corporation
- Business Trust
- Professional Corporations, Professional Limited Liability Companies, and Limited Liabilities (for professionals such as doctors, lawyers, architects, and accountants)
What are the Benefits of Using a Business Entity in My Estate Planning?
Asset protection is the winner in most folks’ minds, with good reason. For example, if you own your investment real estate in a limited liability company (LLC) and a tenant is seriously injured and sues, your personal assets can’t be seized in that lawsuit.
Your insurance would pay first followed by the seizure of any assets owned in that particular LLC.
- Your personal assets such as your house, investment accounts, bank accounts, and cars can’t be taken from you.
- Neither will assets held in a separate LLC or other protected entity.
Asset protection works the other direction as well. For example, if you cause a horrific car accident and are sued for millions of dollars, any personal non-exempt assets will be seized.
- If your car insurance (and umbrella liability insurance) is not enough, your personal assets can be taken.
- Such personal assets might be your house, investment and bank accounts, and car.
- However, the real estate you own in your LLC can’t be seized because you don’t own that property, the LLC does.
In today’s world, asset protection must be part of any comprehensive estate plan. Asset protection starts with good insurance and then moves along to include trusts, and, if appropriate, business entities such as the LLC used in our example.
However, there’s more to business entities than just asset protection. When LLCs, family limited partnerships (FLPs), and the like are used in an estate plan, parents and grandparents can transfer assets to children and grandchildren without losing control of those assets.
For example, if a couple owns 5 apartment buildings in individual LLCs and a feed mill in another LLC, the parents can set up a family limited partnership (FLP) to own all of the LLCs. Over time, they can gift limited partnership units to their children (and grandchildren).
The next generations have a beneficial interest in the underlying assets, but no control over them.
It’s a great way to bring loved ones into a business:
- Without giving up control; AND,
- Without allowing your hard earned assets to be subject to your loved ones’ creditors such as divorcing spouses; AND,
- While using your lifetime unified credit amount and annual gift tax exclusions to pass assets without paying gift tax; AND,
- While leveraging transfer tax exemptions.
If you have a large estate, run a business, or may be subject to lawsuits, ask your estate planning attorney whether including a business entity in your estate plan would be a good choice.
