Do you and your spouse own a small business together? Perhaps, you and your spouse invest in rental properties or even own a family farm. What is the connection between being a family, a business owner, and estate planning? As a family and business owner what type of estate planning should you consider? Let’s explore some answers to the questions.
What is a Family LLC or FLP?
FLLC stands for a Family Limited Liability Company. The FLP stands for the term, Family Limited Partnership. The FLLC and FLP is an asset protection opportunity that preserves generational wealth and protects a family business. The Family Limited Liability Company provides protection for all its members or partners. The limited partners receive limited interests from the business. On the other hand, the Family Limited Partnership extends protection to limited partners and the general partner assumes the risks. Limited partners do not engage in daily business operations but enjoy the benefits from the business.
What is Needed to Form the FLLC?
A husband and wife who own a business together may form a FLLC or FLP. Family members related by blood and own a business together may form a FLLC. Bottom line, you must either be married or related by blood, and own a small business together in order to from the FLLC.
What is a Family LLC?
The FLLC is a pass-through entity for income tax purposes. The partners report the income tax; thus, minimizing federal gift and estate taxes. By participating in the business, the family member lowers the business value of his/ her interest. The business interest freezes upon distribution and freezes appreciation. When business interest is transferred, the senior member or partner uses the gift exclusion to avoid paying gift tax.
The Business Succession Plan
By setting up the FLLC, the owners create a foundation for a business succession plan. A solid succession plan preserves a family’s legacy. The FLCC helps family members retain control of certain assets and protects certain assets from creditors. How does this help a husband and wife who own a business together? If structured properly, a creditor may only reach the assets owned by 1 spouse in the family business, but not the other spouse’s interest. Such protection helps keep a family business in operation and allows for a recovery from a cause of action brought by a creditor.
FLLC and Estate Planning
An estate plan consists of your powers of attorney for financial and health care, a last will and testament, and a revocable living trust. When the family owns a business, more asset protection deserves consideration. Today with new tax proposals, it is important for those with a family farm, need to prepare for a succession plan that protects against estate taxes or capital gains issues. A family-owned business is an incredible legacy that creates security for generational wealth and builds your legacy. An FLLC offers an estate planning tool that offers protection against creditors, preserves wealth, and provides a way to lower possible taxes. Therefore, a family business owner, needs to think about protecting family with a full estate plan and protect business assets in the next phase of estate planning.
Your Estate Planning Attorney
I listed some advantages to consider protecting your family and your business assets. You and your family deserve an inheritance plan to preserve generational wealth, your assets, and family changes. Call me at 314-332-0011 or Book now for your complimentary consultation.
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