Q:

How can a family LLC help me leverage my gift?

A:

Well, a limited liability company is like a corporation. The owners are called members. There can only be 100%, or 100 units, or 100 1% interests. When all of the members of the LLC are family members, it makes it possible for the senior generation to gift smaller interests in that company to children or later generations. That is fractionalization, so that the amount gifted away, unless it’s the whole, is worth less than the fractional amount that’s given. 25% is not worth 25% for gift tax purposes. It’s worth something less because of lack of control, a minority interest discount, and possibly a restriction placed in the operating agreement of the limited liability company that prevents sale, or further gift, or transfer without the agreement of the other members. That severely reduces the value of that gift for gift tax purposes. Thus, it’s fractionalized and it’s leveraged.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.