One of the most common inquires we receive from our clients in the Real Estate field involve LLC's, including single member LLC's. LLC's can be used to own real estate, protect against environmental hazards, to facilitate certain tax free reorganizations, as S Corporation shareholders, insulating against undesirable assets and creating tiered entities. Much of the tax complexity of LLC's comes in multiple member LLC's which are generally treated as partnerships. For example, admission of a new member into an LLC can either be taxable as ordinary income or capital gain or tax free based on the method used or can result in imposition of additional tax to an existing member if existing debt is deemed to be “shifted”. Just as essential to understanding the legal consequences of the operating agreement are the income tax consequences to the formation of, investment in, distributions from and debt incurred by LLC's.
Ineffective Gifts for Estate Tax Purposes. Clients who routinely give assets to their children should be advised to update their powers of attorney to specifically include the power to make gifts for estate tax purposes. Gifts made prior to death by the power holder which is beyond the express scope of the power of attorney are includible into the estate of the decedent.