What You Need to Know about the FLLC
One popular yet potentially confusing estate planning tool is the family limited liability company (FLLC). FLLCs are frequently used to facilitate gift-giving to a person’s children and grandchildren because the transfers can use discounted values for gift tax reporting purposes. FLLCs can also be used to shield assets from creditors.
As the name implies, an FLLC is a type of business. When used as an estate planning tool, an FLLC is a company owned primarily by several family members. To create an FLLC, family members must enter into a written agreement that outlines its terms and conditions. The members jointly own any assets transferred to the FLLC.
Importantly, not all members of an FLLC need to be afforded decision-making privileges. The decision makers are managing members, while the nondecision makers are simply members. Managing members exercise shared control over the FLLC. Managing members may manage the assets in the FLLC in any way they see fit, and they may buy, sell, trade, and otherwise operate FLLC assets without the consent of the nonmanaging members. Conversely, the nonmanaging members, often children and grandchildren, do not have an automatic right to contribute to the management of the FLLC.
An FLLC has various nontax benefits. Through an FLLC, a family can consolidate family assets into one bundle that can be more efficiently managed, controlled, and passed on from generation to generation. Assets transferred through an FLLC can also be easily transferred and gifted, because ownership interests in the FLLC (known as membership interests) rather than individual assets are transferred to beneficiaries. If it is important that certain assets be kept in the family, an FLLC can help maintain this family ownership by providing family members with a right of first refusal before an asset is sold outside the family.