THE SAMPLE FAMILY INVESTMENT COMPANY, LLC
A limited liability company can provide significant asset protection for assets owned by the entity in the event of a lawsuit against an individual member of the company. When a judgment is entered against a member, the creditor has no right to seize the assets inside the company or the member’s membership interest. Creditors have no right to manage the company or to demand that distributions be made from it. The law generally allows a creditor to seize any distributions made to the member against whom a judgment is entered, but not the assets inside it. Furthermore, since the creditor does not become a member, there is no way for the creditor to force the managing member to take any action. The creditor would be forced to wait until a distribution was made to the debtor-member. These asset protection benefits are not available when a judgment is entered against the company itself. In that event, the creditor may satisfy the judgment with company assets. For this reason, high-risk assets should not be contributed to or purchased by the company. A limited liability company is established by filing Articles of Organization with the Secretary of State. The managers of the company have total control and management of the company regardless of their percentage of ownership. Most investment assets may be held by your LLC, including real estate (other than your personal residence), tangible personal property and intangible personal property (such as stocks, bonds, mutual funds, brokerage accounts and life insurance). Generally, no gain or loss is recognized when assets are transferred to the LLC.
LLCs do have some continuing administrative fees and expenses. They may require a yearly income tax return, accounting, and annual filing fees. They need to be reviewed by counsel at least annually in order to make sure the company is being operated properly. However, the LLC is not a separate tax-paying entity. Income and losses are passed through on a pro-rata basis to the owners of the membership interests of the company. Therefore, with children or grandchildren in lower tax brackets, the transfer of limited liability company interests to these family members can shift income from you to them at a lower tax cost.