If you’re considering passing on a business to your heirs or you want to simplify and preserve real estate property passed down to a group of heirs, a Limited Liability Company or LLC can be the best option.
Limited Liability Companys began as the 20th century’s answer for small businesses who wanted to form a corporation to protect their business and assets but found the long-term expenses impractical. LLCs combine the pass-through taxation of a partnership or sole proprietorship with the liability protections of a corporation. People also use LLCs to divvy up shares of an overall company and have voting rights proportional to their ownership percentage. They also help maintain the privacy of ownership to the public.
Regardless of why people may want this type of partnership structure, there are several things they should consider when thinking about the legacy and succession of small businesses and property.
Early Estate Planning to Protect your Business
Estate planning is a lot like real estate. It’s something you should invest in early on in your life. Having an estate plan will help you avoid higher taxes, probate, and other problems that may come with owning a business.
Whether you have an LLC or a sole proprietorship, the importance of having an estate plan is the same— it helps protect your assets from being taxed out of existence or having others take them over by using probate courts.
Business Asset Transfers
Your estate attorney will help you form a new legal entity and transfer assets into it. They’ll also assist with transferring titles to the new legal entity, depending on the type of business you’re leaving your heirs. For example, if you own real property that is titled in your name alone, then your estate attorney will help transfer the title so that it’s held by both you and your spouse, partner, or other individuals.
When you set up an LLC or partnership, the ownership of the property has to be transferred into the new legal entity’s name. You can accomplish this in one of three ways:
- By transferring title documents directly from your name to the LLC’s name
- By filing for a change of registered owner at your county clerk’s office
- By filing for a cancellation/transfer of lien at your county clerk’s office
If you are transferring a business into an LLC or partnership, you need to ensure that all permissions, licenses, leases, and other arrangements are aligned with the new legal entity. Making sure your current agreements fit your new structure is essential to avoid liability for any related issues. You should also make sure that you have permission to do what you want to do and that the rights of others in your area are not negatively affected by your actions.
Before you begin the process of transferring your business and assets to an heir, you’ll want to gather all of the documents that will be necessary for the transfer. This includes:
- Estate planning documents, including your will and/or trust(s) if you have one
- Business documentation, like articles of incorporation and operating agreements
- Financial records showing how much money is in each account (and where it came from), as well as any debt obligations or other outstanding bills that might need to be paid off after your death
- Personal tax returns for yourself and any business partners
If you’re interested in using an LLC in your business and estate planning, the team at Smith Barid is available to guide you through the process. Reach out today to get more information about protecting your legacy.