I met with a client recently with family assets that would be perfect for a family LLC or FLP. The client owned three properties with their siblings. There was a valuable home and two commercial properties. Currently each sibling owned 1/3 and thus they are a de facto “general partnership.” This is probably not the ideal set up for many reasons but mainly liability protection and control issues if one should die or become incapacitated.
General partners or revocable “family trusts” provide no liability or asset protection for the creators of the entity. Thus all the assets are subject to creditors claims and lawsuits!
With a family LLC the family retains control at the sibling level (not kids or spouses) and they have liability protection. These are the crucial benefits of the LLC.
To take it a step further they could utilize multiple family LLC’s to create a diversified asset protection. Some people use this system when they feel their properties have higher than average risk of liability.
Lastly, they can utilize individual revocable living trusts to hold the LLC interests. This can allow for distribution of the LLC interests at death. Of course, the living trusts would also include wills, financial powers of attorney, medical powers of attorney, and other ancillary documents.
In short, the use of family LLC’s and revocable living trusts can create a great deal of asset protection and estate planning to reduce tax, avoid probate, retain control, and create some asset protection.
If you find yourself in a similar situation to this client please contact us to discuss YOUR case!