Complicated estate planning question for property


R

Raymond

John Doe has three non business vacation homes (never
rented) and four vacant residential lots. He was considering
creating an LLC for them and then begin a program of gifting
member shares. He was advised against an LLC because the
properties lack a business interest.

Would there be a way to take advantage of the annual gift
exclusion without going to the recorder of deeds each year ?
More importantly, could an entity be formed that would allow
discount valuation through annual gifting ?
 
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K

KenB

John Doe has three non business vacation homes (never
rented) and four vacant residential lots. He was considering
creating an LLC for them and then begin a program of gifting
member shares. He was advised against an LLC because the
properties lack a business interest.

Would there be a way to take advantage of the annual gift
exclusion without going to the recorder of deeds each year ?
More importantly, could an entity be formed that would allow
discount valuation through annual gifting ?
I believe John Doe may place the properties in an LLC (I
know they can be owned by a partnership): The LLC defaults
to filing a partnership return when there is more than one
member. I think in this situation the LLC could elect to not
file a partnership return, if there is no business activity,
but I would need to review current rules to be sure. The
purpose of this LLC would be to hold ownership and to
simplify annual gifting (if the LLC is properly organized
such that gifted interests constitute a present interest
rather than a future interest).

The other question, valuation discount, cannot be answered
in this forum. The IRS dislikes valuation discounts and has
had some success attacking the valuation discount where
there is no business purpose for the entity. There are
differing opinions on what constitutes a valid business
purpose and you should consult a knowledgeable professional
in this area.
 
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S

Stuart O. Bronstein

John Doe has three non business vacation homes (never
rented) and four vacant residential lots. He was considering
creating an LLC for them and then begin a program of gifting
member shares. He was advised against an LLC because the
properties lack a business interest.

Would there be a way to take advantage of the annual gift
exclusion without going to the recorder of deeds each year ?
The LLC, not the individual LLC members, owns the property.
So transferring interests among LLC members need not be
recorded, since record ownership does not change.

What does need to happen every year is that properties will
need to be appraised to ensure that a precise value of LLC
membership is transferred.
More importantly, could an entity be formed that would allow
discount valuation through annual gifting ?
That's a primary purpose of setting up this kind of LLC or
limited partnership. So yes, it can be and is done all the
time.

Stu
 

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