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In an LLC, the members are free to organize the LLC in whatever manner they choose, with near-total freedom to define the relationship among the members and the terms governing the operation of the entity. The fundamental terms of an LLC’s ownership, operation and management are set forth in its LLC agreement. The LLC agreement has been a popular topic in many other blog postings. This posting will focus on the LLC’s potential as an estate planning tool, highlighting just how flexible the Delaware LLC can be!!!
The LLC agreement not only governs terms such as sharing of income and liabilities, it also sets forth the terms governing the liquidation of the entity and the replacement of members. An LLC does not have a fixed life term, and can remain in existence, even after the death of one or more members. A carefully drafted LLC Agreement can help to ensure a smooth transition of control after the death of a key member, making the LLC an attractive vehicle for family estate planning. The LLC agreement will allow control over the LLC, its assets and/or its business to be passed along to surviving family members.
It is important to remember that an LLC Agreement is not filed or otherwise provided to the state of Delaware, and is not available for public inspection or part of the public record. Thus, the confidentiality of family affairs is maintained.
Structures such as these can be used for holding of real estate, passing along of a family business or any large asset. The structure allows the family business/asset to be transferred from one generation to another, in theory, forever! The long and costly procedures associated with probate and interpretation and implementation of wills can be avoided, allowing for a quick and seamless transition in the event of a passing.
This structure is an example of how flexible the Delaware LLC can be while providing the members’ freedom of contract with one another upon whatever terms they deem best suited to their circumstances and goals.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.