Business Entities – Not Just For Businesses Anymore
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Most people are familiar with corporations. Some people may have encountered a business entity that has existed in Indiana since 1993 called a limited liability company (an “LLC”). Business people have used these entities in Indiana to solve a wide variety of problems, including protection of personal assets from business liability, controlling tax consequences of various business activities, and other purposes.
A corporation is simply a business entity that is established and owned by shareholders who own shares of stock in the corporation. The corporation may own, in turn, vehicles, equipment, contractual rights, and other assets. Indiana business corporation laws do not give corporations much flexibility in how shareholder rights are managed and, consequently, a shareholder’s rights and obligations concerning income and expenses of the corporation are allocated based on the number of shares of the corporation’s stock that the shareholder owns.
LLC owners, called members, enjoy the same kind of limited liability from risks of the LLC’s business operations that protects corporate shareholders from corporate liability. An LLC owner may lose his investment in the LLC if the LLC suffers a business loss, but the LLC owner will not necessarily be liable for the LLC’s debts. Members may manage the LLC’s business, or they may appoint managers to manage the business. This management by managers resembles a corporation’s management by corporate officers and a board of directors. An LLC member has much more flexibility than a corporation shareholder to make customized business operating agreements with other members and the managers. This great flexibility in designing a member’s relationship to an LLC resembles the great flexibility that estate planning attorneys use in writing wills and trusts.
Many estate planning attorneys have been splitting their time between writing wills and trusts for estate planning clients and establishing LLCs and corporations for business clients. Over the past 20 years, estate planning attorneys have also developed LLCs to accomplish sophisticated estate planning objectives, such as minimizing taxes on gifts and estates for wealthy clients. Increasingly, however, less wealthy clients are benefiting from creative LLC estate plan designs to minimize Indiana inheritances taxes, simplify wealth distributions to family members, avoid probate administration complications and costs, and minimize wealth consumption by long-term care expenses.
A simple LLC plan can resemble an estate plan that features a revocable trust. The cost of such a plan can also resemble the cost of a revocable trust plan. Wills, trusts, and LLCs are not magical devices that suit every client’s purpose, but they are valuable tools for estate planning attorneys to help clients achieve estate planning goals. As in all estate planning choices, the client and attorney must determine which tool will do the best job within the client’s budget.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
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