When most people think of estate planning, they think of Wills, Trusts, and similar documents. But one form of estate planning that often is overlooked is the Family Limited Liability Company. In many instances, this tool can be a great way to help families manage property and transfer it to younger generations.
A Family LLC is fairly easy to set up. It is basically a company that holds property owned by family members. In exchange for donating those properties, the family members who donated them would receive stock in the Family LLC. This stock could then be slowly transferred to younger generations without having to split up the properties into tiny partitions. Likewise, the family can place restrictions on the sale of stock in this LLC, limited stock ownership only to members of the family.
For instance, let’s assume that Joe and Sally Smith own a ranch and three oil/gas interests on separate properties. They are in their retirement years, and want to eventually give these properties to their kids. However, only one of their three children really knows anything about ranching and dealing with oil/gas leases. In this case, forming a Family LLC could be a great estate planning tool. By creating a Family LLC, Joe and Sally can ensure that these properties will not be split into tiny partitions, which would decrease the value of the properties. Upon their death, they can give their children stock in the company rather than split up the properties. The children can still each own a 1/3 interest in the company, but the land (and mineral interests) would not have to be split. Likewise, since only one of their children knows how to manage the ranch and handle the negotiations with oil companies, the two other children can elect their sibling as the “manager” of the company to run the day-to-day operations. In this way, they will not have to worry about learning the ranching business or being taken advantage of by the negotiators at the oil companies. Likewise, by keeping their mineral interests together, they will have better bargaining power with the oil companies. When it comes time for the children to make their Wills, they can simply give away their stock in the company, ensuring that the properties are not split into small plots that would have little value.
As you can see, forming a Family LLC can be a great estate planning tool. Likewise, this can be a way to transfer property to your kids during your lifetime without having to partition the property and cause a disturbance in the management of the property. Likewise, you can ensure that property will stay in the family rather than being sold to third parties.
At Cook & Gore, our Estate Planning Attorneys can help you set up a Family LLC. Give us a call at 214-236-2712 if you have any questions.