As trusted advisors, sharing valuable strategies to effectively manage a client or prospect’s finances and assets can help in developing a deep, long-term relationship with clients. One such strategy that high net-worth individuals can benefit from is using a limited liability company (LLC).

What is an LLC?

• A business structure that is owned by one or more members (your client)
  • Single-member LLC
  • Multimember LLC
• 2 kinds of management for the LLC
  • Member-managed
  • Manager-managed

How an LLC Works

• Client creates an LLC and transfers money and property
  • Client will be the member
  • Spouse might be a member
  • Can add members
• Operates as a separate entity
• At the member’s death, their membership interest may still need to be transferred
• An LLC can own a lot of different things like real estate, investment accounts, personal property, etc.

Benefits of an LLC

• An LLC can help a client’s or prospect’s loved ones avoid the probate process as it relates to accounts and property owned by the LLC.
  • Probate is only for the accounts and property the client or prospect owns at their death. An LLC cannot die, which means that the LLC remains the owner of the LLC’s accounts and property.
  • If the membership interest is owned by the client, transfer of the interest may require a probate proceeding. This is why it is common for the membership interest to be transferred to a trust (if the operating agreement allows for it).
• As a separate entity, an LLC can protect the member’s personal accounts and property from the LLC’s creditors or other issues involving the LLC. The member’s creditors may also have limited ability to reach the LLC’s accounts and property. However, some states limit the protections afforded a single-member LLC.
• An LLC is a business entity, and in order to enjoy its benefits, it is crucial that the formalities of an LLC are observed and followed. If the formalities are not followed, a creditor may be able to pierce the veil of protection offered by the LLC.

Important Updates:

• Effective January 1, 2024, LLCs that meet the definition of a reporting company will need to file a Beneficial Ownership Information Report with the Department of the Treasury’s Financial Crimes Enforcement Network.
  • The report must include the name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document, along with an image of that document, for all beneficial owners of the LLC. A beneficial owner is an individual who owns or controls 25 percent or more of the ownership interests of the company or who exercises substantial control over the company.
  • For those reporting companies created after January 1, 2024, the same information about the company applicants must be provided. A company applicant is the individual who:
• files the document that creates the entity;
• registers the entity to do business in the United States, in the case of a foreign reporting company; or
• is primarily responsible for directing or controlling another’s filing of the document.

An LLC can be a useful planning tool for many clients and prospects. The following scenarios can help you determine when to reach out to or work with clients or prospects for incorporating an LLC in their Estate Plan.

• Clients or prospects seeking asset protection.

Whether they have their own business, investments, rental property, or risky toys (like a boat or plane), an LLC can add a layer of protection so that the client’s or prospect’s personal accounts and property might not be taken if there is an issue with the LLC or the property it owns. An LLC may also protect the LLC’s accounts and property from a member’s personal creditors.

• Clients or prospects who want to avoid probate.

By transferring accounts and property to an LLC either during the client’s or prospect’s life or by naming the LLC as a beneficiary at the client’s or prospect’s death, the LLC becomes the owner of those accounts and property. Because an LLC cannot die, the LLC remains the owner of the accounts and property without probate court involvement.