The Family Limited Liability Company
Submitted by Chris Moss CPA
Credit Suisse pleads guilty to helping “clients deceive U.S. tax authorities by concealing assets in illegal, undeclared bank accounts, in a conspiracy that spanned decades..” —and no one going to jail? According to news reports the only penalty to Credit Suisse was a $2.5 billion fine. In fact, US Attorney General Eric Holder, made certain that Credit Suisse and their CEO Brandy Dougan would still be allowed to do business as usual in the aftermath of the criminal plea.
Are you surprised? The outdated and ultra-complex US Tax Code, 100 years in the making, is a dinosaur in the 21st century. As a result, a few hundred or perhaps thousands of wealthy Americans along with their corrupt tax advisors go through the most amazing hoop of all—they put themselves and their family at risk of criminal prosecution just to save income some tax dollars each year by illegally keeping assets and earnings off shore. Come on America’s top wealthy taxpayers who have their money offshore—there is always a legal work around that will save you taxes and help America, the country that made it possible for you to make all that money. Why not put your money to work here in the United States and start a Family LLC. Start to purchase commercial real estate and put your kids to work in the family business. Start a Family Limited Liability Company. The Family LLC will save you taxes but more importantly will keep the family, your family, together and committed to stay together for many years to come.
According to the Wall Street Journal, “Wealthy families are increasingly turning to family limited liability companies to minimize taxes and transfer assets between generations.” The WSJ goes on to say that the “strategy helps provide hands-on investment education for the younger generation without forcing older family members to cede control.”
Here is how the Family LLC works: The easy workaround for The Parents or Grandparents with net assets less than $10 Million is to gift the bulk of their assets to younger generations You do this by gifting membership interests in the Family LLC to your kids or grandchildren. However, the Grandparents retain management control as managing members. I then customize the operating agreements to match each client’s unique family, business and long range financial goals. For one family the purpose of the Family LLC might be to promote unity within the family, organize and protect the assets of the family from harm including creditors, and as a very distant third purpose to reduce income and future estate taxes.
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For clients of mine with net assets over the $10 Million exemption we would have operating agreements focusing on the reason for discounting memberships to the children. Best practice allows for discounts in the 20% range–and sometimes even up to 30%–primarily because the children cannot sell their interests as per the custom operating agreement. But another reason worth arguing before the IRS is that typically in these cases the children would have minority interests of less than 20% with no management control making their interests worth less even if they could sell.
So for example if a family has a family business with a net worth of $20 Million, a 20% discount would allow for a $16 Million dollar valuation. From that I would recommend a $10 Million dollar gift to the children and grandchildren with the remaining $6 Million still in the membership of the Grandparents. A good tax strategy at that point would be to perhaps leverage the $6 Million to purchase a few more commercial rental properties or perhaps a hotel or a fast food franchise. Creating divisions within the family business allows for children and grandchildren to actually work in these businesses as well as own them.
When all is said and done, if the Family LLC is good for your family, the Family LLC is good for America. My view is that American family business is the backbone of our great nation. If the Family LLC keeps your family business strong, the Family LLC will keep America strong. Ask your tax professional to consider whether you should setup and operate a Family LLC not only to help your family, but to help America.
See you next month and God bless America.
Kindest regards Chris Moss CPA
