Many people have existing businesses, and business succession is an important planning objective. For assets not held in an existing business entity, sometimes the formation of a corporation, partnership, or limited liability company can help accomplish estate-planning objectives, including asset management, asset preservation, and even estate reduction. Business entities require that certain legal formalities be observed and that separate accounting records be maintained.
- Corporations: Corporations are frequently used to shelter personal assets from the liabilities of a business. Gifting stock in a family corporation is a relatively simple way to make gifts. Gifts of minority interests and nonvoting stock are not only entitled to valuation discounts, but they entitle the recipient to retain control of the corporation and its assets. Corporations are separate taxpayers ("C corporations") unless their shareholders elect to be taxed individually on their pro rata share of corporate profits ("S corporations").
- Limited Partnerships: Limited partnerships can be formed to allow you to make gifts of partnership interests to family members while maintaining control over the underlying assets. Partnerships do not pay taxes and do not have to make special elections in order to be taxed individually on partnership profits. Partnership interests are usually subject to transfer restrictions that can justify even more significant valuation discounts for gift-tax purposes.
- Limited-Liability Companies: Limited-liability companies ("LLC's") combine the best characteristics of corporations (limited liability of all members) and partnerships (pass-through of tax benefits). For most purposes, planning with LLC's is very similar to planning with limited partnerships.
- Giving: Gifts of interests in a family business are usually entitled to valuation discounts because of lack of voting control and the lack of marketability. By making lifetime gifts, it is often possible to reduce a person's interest to a minority share (especially for married couples owning equal interest), entitling the estate to a valuation discount for estate-tax purposes.
- Entity Selection: Which entity is correct for you will depend on a variety of factors, income taxation being just one of them. Other considerations include marital status, business venture purpose, expected revenues and expenses, privacy concerns, management, professional licensing board requirements, cost and ease of administration. For these reasons we recommend that an attorney advise you on the far-reaching consequences of entity selection.
Please do not hesitate to contact our offices at 702.318.5033 to discuss your personal situation at one of our two convenient locations:
Mention this website and receive a 30 minute free consultation regarding your situation.