Daisy-Chained Property Inheritance LLCs
As you can see, this LLC creation and dissolution process can be daisy-chained right through the generations.
Importantly, any time one of the players dies, the situation must be carefully re-thought with LLC share transfers, creation and dissolution engineered so as never to transfer more than 50%. If at any time a transfer goes over 50%, the effort ends, and the property gets reassessed—so the process must be deployed with skill. So, people must die on time and in order. Unfortunately, people often die out of order and not on time.
If the value of your properties (and potential property taxes!) are high, the costs of this strategy in legal and LLC fees might well make sense for your family. It’s difficult to estimate the legal costs at this time, as situations will vary so much.
If you have only one child, or need to exclude a child from this arrangement for one reason or another, you and your lawyer will likely have to get creative to find another LLC owner to involve, so you can create the proper daisy chain of ownership–such as including a charity in the LLC, and then later cancelling that donation.
In addition, the order of deaths within a family must be “planned” along with the LLC chain, or the entire chain might also fall apart – hence the long-term commitment to working with a good law firm which stays on top of the situation.
Yes, it’s certainly possible that the Assessor’s office will challenge the validity of your arrangements and attempt a reassessment, requiring appeals. So yes, the family must have both the resources and a certain fortitude of will to pursue this route. If done properly, the chances of reversing an adverse ruling by the Assessor are high.
A Family Property LLC Could Potentially Avoid New Estate Taxes
It is expected that the Biden Administration will greatly lower the threshold for estate taxes (the Death Tax). It’s also likely that Biden will attempt to eliminate the Step-Up Basis for investment values at death, along with other coming changes in taxation requiring urgent planning. A similar Family Property LLC technique could possibly allow your family to escape the consequences of those changes as well, through the careful management of multiple assets through your death.
As wealthy families have long known, it’s often wise to have an LLC own your assets—while you continue to exercise control. But general estate taxes are a subject beyond the scope of this article.
A Long-Term Wealth Transfer Strategy with a Law Firm
Does a Family Property LLC strategy require a good law firm, with which your family will engage over years, even decades, one generation to another? You bet. Can mistakes along this path lead to major negative financial consequences? Certainly. But the new tax laws will lead to major consequences as well.
Advanced Tax Planning Consultation at CunninghamLegal
In the shadow of the many significant tax changes occurring both nationally and statewide, I urge you to step back to take stock of your family’s challenges and opportunities. I also urge you to consult with a qualified attorney and tax planning specialist, not just a bookkeeper or CPA, about your options.
Beginning in March 2021, CunninghamLegal will be offering an Advanced Tax Planning preliminary consultation to see what would be the right mix of strategies for you in the coming years. Here’s how it will work. You can set up an appointment for a free 15-minute consultation. If you want to proceed, a full consultation via Zoom or telephone is available on a flat-fee basis.
This call should be the start of saving your family’s fortunes for generations to come. Before any consultation, we ask you to collect all your asset information, as well as anticipated inheritances and your current estate plan—and send it to us in advance.
At the end of the meeting, we’ll jointly decide whether to take further action or not. Additional fees will of course apply to any further work we do, but you will leave with a solid prognosis for your tax and estate situation, and an overall plan for the future.
You can request a booking for a free 15-min or full consultation beginning March 1, 2021 using the form on this page, by calling us at +1 866.988.3956, or by clicking here.
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We will be posting updates to our Post-Prop 19 strategy recommendations on this page as they develop. We also invite you to subscribe to our YouTube channel, where we follow these issues closely.