LLCs: Lots of Folks Have ‘em But What Should You Do?
Money Matters Radio – Estate Planning Checklist
By: Martin M. Shenkman, Esq.
Introduction/Overview: LLCs, or limited liability companies, are the most popular form of entity to use for a business, investment or rental property. LLCs are so flexible they’ve become the Swiss Army knife of planning. Using an LLC can do all of the following:
Protect your personal assets from lawsuits pertaining to the business or a rental property owned by the LLC.
Provide a management structure in case you are ever disabled.
Enable you to make gifts to your children while still have some measure of control.
Make it easy to divide ownership of an assets between several people.
Provide a workable arrangement to address family issues concerning a family vacation home or cottage.
Provide discounts for estate planning purposes.
But to have a shot at these great benefits, you need to do your homework and observe LLC formalities. Here are some to consider:
Have a Current Operating Agreement: An “operating agreement” is the document or contract that governs and controls your LLC. Be sure that you have one that is current and reflects the correct owners and management arrangements. If you change owners or arrangements, get your agreement updated.
Filings: Your LLC is formed when a legal document, often called a “Certificate of Formation” or “Articles of Organization” is filed with the appropriate state agency. Make sure yours was filed and that you have a copy back that reflects the filing acknowledgement. This will have the date of filing and a number assigned in many cases. Some states have other requirements, e.g. New York requires a summary of this document be published in certain newspapers. Be sure that was done and that you have proof.
Tax ID Number: Be sure you have a tax ID number for your LLC and operate and handle all business under that number. If you have a single member (you’re the only owner) LLC, many accountants will advise you that you don’t need a Tax ID Number for the business and can use your Social Security number. Even if this is correct from a tax perspective, it makes the risk of your commingling business and personal funds too great.
Separate Bank Account: All LLC activities and investments should be done in separate LLC accounts. Never mix personal and LLC funds. If you need to transfer money to your LLC, have your lawyer prepare a note or document that it is an investment in the capital of the LLC.
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