Introduction/Overview: LLCs, or limited liability companies, are the most popular form of entity to use for a business or to own a rental property. LLCs are flexible, inexpensive and able to be adapted to a wide range of uses for lots of people. There are many creative uses to which you can put an LLC.
Consider the following items:
Home Business: So you have a small home business. It’s not worth setting up a corporation for the business, you don’t make that much. [Buzzer sound]. Wrong! It is pretty simple and cheap to set up an LLC to own your small home business. Why is it worth doing? Because however little your business is, that doesn’t limit the amount of liability you face, so instead, set up an LLC to own it and protect your home and savings if your business is ever sued.
Safe Deposit Box: You’ve heard ugly stories over a safe deposit box being sealed when someone dies. What if your box was instead taken out by an LLC you set up? Death of a box owner is no longer relevant because the box is owned by the LLC, not by an individual person.
Uncle Joe’s Vacation Home: When Uncle Joe passed on, he bequeathed his mountain cottage to all his nieces and nephews so now 10 people own interests in the vacation home. Everyone owns it as a tenant in common (that is how the deed would be written from Uncle Joe’s estate). Better approach – have the estate set up an LLC and transfer the property to the LLC, then transfer interests in the LLC to each heir. This way title can be much simpler, and if anyone else makes a transfer the deed won’t have to change. Most importantly, the legal document governing the LLC, called an “operating agreement,” can include provisions governing the use of the vacation home, who has to pay what and when, and so forth. A simple agreement can go a long way to minimizing fights later. Even better, the nieces and nephews can elect one (or perhaps 3) individuals to make decisions so that it is practical to take care of issues that come up without having to run a mini United Nations of all 10 nieces and nephews.
Succession Planning Made Simple: So you have a small business or consulting practice. What if you get sick or die? What happens to the business? Who has authority to take care of bills and contracts while you’re recuperating? Setting up a manager managed LLC (that’s an LLC for which the legal documents designated a person to run the LLC, called a “manager,” is pretty simple. But here’s the cool application. If the business is just you, then you’re the first manager. But you can name a successor manager easily in the operating agreement. This way, if you’re sick, whoever you designate will have the legal authority to keep the business running until you return!
Family Gifts: Grandma decides to make $13,000 annual gifts to all her children, their spouses, and all her many grandchildren. However, how can the family invest the money? It would be a lot of paperwork to set up a score of accounts and each might be so small to be impractical. Instead, the family sets up an LLC. After grandma makes gifts, all the many family members contribute their cash to the family LLC which can maintain a single investment account.
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