Use of Family Limited Liability Company (FLLC)

By: Lawrence M. Fuchs, Esquire

In recent years FLLCs have been used as a method of protecting family assets from creditors, dividing income amongst generations (i.e. grandparent, parent and grandchildren), maximizing a family's net spendable income, and providing long range estate planning opportunities.

The usual arrangement is where the senior member of the family establishes the FLLC and serves as the Managing Member. Children and/or grandchildren may be Members, but without any control or management rights. Generally speaking, the senior member establishes the entity and delivers capital assets into it in the form of cash, securities, real estate, etc. Percentages are given to the children and/or grandchildren, and major discounts are permitted as to the valuation because each child and/or grandchild will be receiving a minority interest, without management rights. Liability for debts of the FLLC is limited to the amount of each party's contribution into the entity. The ownership of shares in the FLLC is very flexible and may be modified to meet the changes in the family or business structure of the FLLC.

Benefits can include shifting of income tax and the tax liability amongst generations in the family. Estate planning benefits include reducing the Estate size and salaries of the senior members of the family, while protecting assets from lawsuits against individual members of the family and/or the entity itself.

Use of the FLLC does require assistance by counsel and/or accountants including the preparation of federal and state tax returns for the FLLC. Usually income taxes are not increased; they are simply shifted to the members. Estate tax savings can be one of the most compelling reasons along with asset protection, to use an FLLC.