How to Open a Family LLC
How to Open a Family LLC
A family limited liability company (LLC) is a common way for families to protect their assets. Also, it can be an estate planning tool.
An LLC provides personal liability protection and is a pass-through entity.
In short, this means that any profits of the LLC pass through to its owners, called members, to be taxed at their tax rates.
Family LLC members must be related by blood, marriage, or adoption.
Benefits of a Family LLC
Two main benefits make family LLCs an attractive option.
Asset Protection
LLCs can have their assets.
By putting assets in a family LLC, those assets are protected from your creditors. Moreover, you can be protected from legal action that’s taken against you.
For example, if you put your home into an LLC and you have a debt that you cannot pay or you are sued personally. Even more, your home is not at risk because it is no longer your asset.
Estate Planning
A family LLC can be used as a tool in estate planning to help avoid estate taxes and gift taxes. This is done by making distributions of assets to family members at specific times so that they are not considered inheritances or gifts.
Steps to Open a Family LLC
Opening an LLC involves several steps.
First, to Open a Family LLC, Select a Family LLC Name.
You’ll need to choose a name for your LLC that follows your state’s LLC naming requirements. You can choose to use your family name, such as “Jones Family LLC.”
Or, to protect your privacy, you might choose a name that does not include your family name.
Once you’ve chosen a name, you’ll need to make sure that it’s available by doing an LLC name search. You can do this on your Secretary of State’s website.
You should also make sure the name is not trademarked by checking the USPTO website.
Second, to Open a Family LLC, Determine Who Will Manage the LLC
Usually, in a family LLC, one member is appointed the manager of the LLC.
The manager of the LLC has the power to act on behalf of the LLC to manage bank accounts. Also, you can handle assets, sign contracts, or take other actions.
Next, Choose a Registered Agent
A registered agent is the person or company authorized to accept correspondence on behalf of the LLC. This correspondence can include state, legal, or financial documents.
While the manager of the LLC or another member can be the registered agent, that person will then be required to be present at their registered address during normal business hours.
That scenario is usually not feasible, so you could choose instead to appoint your legal firm as your registered agent or hire a registered agent service company.
Fourth, to Open a Family LLC, Register Your LLC with Your State
To officially open your LLC, you’ll need to file a document with the state, which is usually called the Articles of Organization.
You can do so online in most states, and filing fees range from $40 to $500.
Fifth, to Open a Family LLC, Create an Operating Agreement
An operating agreement is extremely important for a family LLC. It will specify the ownership percentages of the members, the management structure of the LLC, the voting rights of members, and how disputes are resolved.
It should also contain rules for distributions from the LLC, as well as how profits are allocated for tax reporting purposes.
Creating an operating agreement for a family LLC is not a DIY project. You should have an attorney draw it up for you to ensure that the interests of all members are protected.
Next, Obtain an EIN
Since your LLC will presumably have more than one member, you’ll need to obtain an employer identification number (EIN) for your LLC.
An EIN simply allows the IRS to identify your business. You can apply for EIN on the IRS website.
Seventh, to Open a Family LLC, Plan to Share Annual Reports
In most states, LLCs are required to file annual reports which just confirm that the LLC is still in operation.
These reports can generally be filed online and come with a fee.
Finally, Transfer Assets to the Family LLC
You’ll need to transfer all the relevant assets into the name of the LLC. For example, bank or investment accounts should be opened in the LLC’s name and all bank and investment assets should be transferred into those accounts.
Transferring real estate to the LLC is a bit more complex. If the properties have mortgages, your first step is contacting the lender or lenders. Some lenders will allow you to simply transfer the loans into the LLC’s name, but it’s more likely that you’ll be required to refinance the loans in the name of the LLC.
Then you’ll need to transfer the deeds to the properties into the LLC. This is best done with the help of your attorney because there are different types of deeds, and the rules for transferring deeds vary by state and location.
In Closing
Before opening an LLC, you should talk to your attorney to make sure it’s the best option for you. They may suggest an alternative, such as a trust, or they may advise you to have both.
If you ultimately decide that a family LLC is for you, your attorney can help you through the setup process and make sure that everything is done correctly.
They can also ensure that you and your family’s interests are protected and that you get the maximum benefits from the LLC in terms of asset protection and estate planning.
Were you encouraged by what you read?
Then, would you share this article with a friend, co-worker, or family member?
Or, maybe you can send it to a friend or family member?
This blog occasionally uses affiliate links and may contain affiliate links.
Additionally, Melanie Redd is a participant in the Amazon Services LLC Associates Program.
This is an affiliate advertising program designed to provide a means for sites to earn advertising fees. These are earned by advertising and linking to amazon.com.
Also, for more on my disclosure policy, click HERE. © Melanie Redd and Hope Ministry, 2024. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.
Further, excerpts and links may be used, provided that full and clear credit is given to Melanie Redd and Hope Ministry.
Please give appropriate and specific directions to the original content.
0 Comments