There’s an urban myth making the rounds that if you create a limited liability company (LLC) as an estate planning tool, it will be easier for your family to distribute to them after your death*.
Yes, but…
For most of us, using an LLC as your estate plan is not the genius idea some are enthusiastically calling it.
The primary population for whom using an LLC as their primary estate planning vehicle are people/couples whose net worth exceeds $27.98 million (in 2025) and therefore exposed to inheritance taxes. In 2025, the first $13.99 million of an estate is exempt from inheritance tax. If a couple’s estate exceeds $13.99 million, they can create his ‘n her trusts and EACH of them leave up to $13.99M (up to $27.98 million for both). Wealthier than that, but not quite in the financial stratosphere that calls for funding a family foundation (think the Bill and Melinda Gates of the world)? Then an LLC could be a good choice of estate planning tool, but we’re specifically talking about estate planning for people who already have lawyers and CPAs on speed dial, and who know that their estate is going to get rubbed up against inheritance or gift taxes.
The primary value of using an LLC as the primary estate planning vehicle is that fractional shares of an LLC are not valued at the exact mathematical fractional dollar value of the whole. Why? Because nobody would pay full price to purchase a fractional (minority) share of an LLC when all the other shares are owned by members of the same family. The notional sale price of a fractional share of an LLC is discounted, sometimes as much as 40%, and the IRS approves of this methodology. Lower value = lower inheritance tax or lower gift tax.
Key Takeaways
- Yes, you can set up an estate with an LLC to help lower the estate tax burden.
- While gifting shares of an LLC are still subject to the yearly gift tax rules, you can often gift more assets because of the decrease in value of less-marketable assets.
- Using an LLC as part of an estate plan is not for everyone and can even make it difficult to transfer assets.
- You remain in control of assets placed into an LLC. At least, until you pass away…
- An LLC is a business entity. Using an LLC for estate planning is not a “set it and forget it” maneuver. It has to be operated and in particular, the owners (“members”) must take care to observe the formality of corporate existence.
- Creating an LLC for the specific purpose of using it as a vehicle to transfer property to a younger generation is not for most of us.
Virginia Beach Law Group’s experience with estate planning will help you set up a plan for your assets, including an LLC, where appropriate.
Should You Use an LLC for Estate Planning?
If you are not at risk of being hit with inheritance tax, contemplating the use of an LLC for estate planning should remain in the category of daydreams.
Virginia allows “family” limited liability companies. Any LLC is subject to the same laws. You can reap some tax benefits from leaving some of your assets to your children in an LLC, but we do not recommend putting all of your assets into an LLC.
In a family LLC, the parents remain in control over the assets. They can buy, sell, and trade the LLC’s assets, but the non-voting and non-managing members – the children – cannot. You can also use the operating agreement to restrict selling shares of the LLC, even when the children are adults.
Gifted shares of the LLC are subject to the federal gift tax. However, because the assets become ‘less marketable,’ you can discount the value of the assets up to 40 percent. Thus, the non-managing members could receive an inheritance advance with a much lower tax burden.
What Are the Advantages of Using an LLC as Your Estate Plan?
- Simplification of business asset transfers to family members: Creating an LLC with a properly structured operating agreement allows assets to be transferred to family members, possibly without going through probate.
- Preventing assets from being transferred: How you structure the operating agreement can prevent your heirs from transferring assets before and after death. This can be a good way to preserve wealth for generations to come.
- Allowing for preferable income tax treatment: Property that transfers on occasion of your death that exceeds the exemption will be subject to gift and estate taxes. Taking advantage of the discount applied to fractional shares helps reduce the tax.
- Minimize estate tax and gift tax burdens: Because of the valuation of the assets in an LLC, you can transfer more shares of an LLC than you can of the actual value of the assets without exceeding the yearly gift tax threshold.
Should the Tax Cuts and Jobs Act sunset in 2026, the estate tax threshold could drop significantly, affecting how much estate tax your heirs will have to pay. Creating an LLC could dramatically lower the amount of assets in your estate. However, we recommend a wait-and-see approach. With the present administration in Washington, we anticipate that the Tax Cuts and Jobs Act will be made permanent.
What Assets Can Be Transferred Into an LLC?
You can place any asset into an LLC, including other LLCs. However, transferring personal vehicles into the LLC is not advisable, as this could cause trouble if you are in a vehicle accident. If the accident is your fault, the plaintiff could win your business assets in a lawsuit if you do not have enough insurance to cover the plaintiff’s award.
Interested in Using an LLC for Your Estate Plan? Contact Us.
Some people may benefit from including an LLC in their estate plan. If you do not have an estate plan or need to update your estate plan, contact Virginia Beach Law Group at 757-486-4529 for a consultation. You can also complete our online contact form to schedule a consultation.
Why Clients Choose Virginia Beach Law Group
Creating an estate plan, even for those who do not have a lot of cash and assets, can be complex. An experienced estate planning attorney can help you create a strategy that best protects your assets and transfers them to the next generation with the least hassle and tax expenses.
Testimonials
“I’ve worked with David Johnson on a personal case and have sent clients his way for years. He does amazing work and is a true professional. He is my go-to for all things estate planning related.” — Najib K.
“Huge kudos to Virginia Beach Law Group! I have used them in the past and will use them in the future when needed. Very professional, respectful and a family oriented firm.” — Heather N.
*NOTE: this article deals with the notion that one can form an LLC and put everything they own into it somewhat like creating and funding a Revocable Living Trust. The main objective of this theory is to avoid or minimize inheritance tax. If you presently have an LLC form of business entity you own or co-own and operate, that’s different. Your interest in the company can be bequeathed or inherited just like any other personal property. But there can still be value in the discount applied to fractional shares. Come see us!
Frequently Asked Questions
Including an LLC in your estate plan can lower the estate tax when you die. It also allows you to gift shares of the LLC to your children at a lower amount. Thus, instead of staying under the gift tax threshold and receiving fewer assets, you could gift your children “shares” of the LLC. These shares may “discount” assets by up to 40 percent since they become less marketable once placed into a limited liability company.
You can set up your estate in various ways, depending on your circumstances, including:
- Using only a Will.
- Using various trusts in combination with a Will, including revocable and irrevocable trusts. You can also use living trusts, charitable trusts, and other types of specialty trusts.
- Other documents were added, including medical and financial powers of attorney, living trusts, and limited powers of attorney.
- Combining an LLC with one or more trusts and a Will.
- Adding life insurance policies to estate plans.
Your estate may or may not have to go through the probate process, depending on your circumstances.
An LLC is considered property. The character of property as a business entity does not change the fact that it is property. Whether it has to be part of the probate process or not lies in how it, or fractions of it, are transferred to one’s beneficiaries. It will be noted when your estate goes through probate.
