Why Your LLC Is Not A Guarantee Against Estate Taxes and Probate

(Por que a LLC NÃO é uma Garantia Contra Impostos de Falecimento e Inventario)

(English)

Probably the most often heard statement from my international clients is “my friend said to just open an LLC and I don’t have to pay taxes when I die.”

Foreign investors beware: An LLC does not automatically avoid the estate tax of 40% and probate. I’ll repeat, an LLC does not automatically avoid the estate tax of 40% and probate.

An LLC also does not automatically avoid probate in Florida. Its Operating Agreement must be properly drafted to be effective.

If you already opened an LLC not all is lost. What does the LLC provide as benefit to you as a foreign investor in the United States?

1)      The LLC is a limited liability company, meaning it protects its members (owners) from lawsuits and judgments against the company, therefore protecting your personal assets outside of the company.

2)      It may reduce or eliminate the estate tax in two ways:

Each foreign national has an exemption allowance of $60,000 before having to pay an estate tax (death tax) to the IRS of about 40%. This tax is calculated based on the market value of your U.S. “situs” assets (assets based in the United States) at the time of your death minus the exemption.

For example: John Doe dies. He is not a citizen or resident of the United States. If John Doe owned property in the United States worth $200,000, his heirs will be able to deduct $60,000 as his exemption and his estate will have to pay the IRS approximately 40% of $140,000 = $56,000 in taxes.

So, the FIRST possibility is: If this property was owned by an LLC with multiple members, each member carries a personal exemption of $60,000. In John Doe’s case, if the LLC had 4 members, the total value protected could be up to $240,000 ($60,000 x 4). If one member died, only that member’s ¼ interest in the LLC would be subject to the estate tax, but covered under that member’s personal exemption.

The SECOND possibility is: United States tax law is not settled as to whether a multi member LLC, typically taxed as a partnership, is included as an intangible asset in the U.S. estate of foreign persons to calculate the estate tax. This means there is no precedent case law available today to determine that a yes or no answer.

The estate tax may most likely apply when the LLC has only one owner and is disregarded for tax purposes. But because partnership interests may be treated as U.S. situs property, there is a risk by owning property through an LLC in order to avoid the estate tax.

3)      A properly drafted Operating Agreement for your LLC may avoid probate. This is not your basic Operating Agreement. After a court decision in 2015, a Florida judge determined that if there is a Transfer on Death provision which provides LLC units to “immediately vest” in the hands of beneficiaries, then the transfer of shares will pass outside of probate.

To discuss planning options to reduce and/or avoid probate and high estate taxes upon your death, consult with an experienced international estate planning attorney. Your investment towards planning today will save your family and loved ones from much stress and extremely high costs in the future after you are gone. Call Paula Montoya Law at (407) 906-9126 today to set up an appointment to protect your investment.

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(Portugues)

Provavelmente, a declaração mais frequentemente ouvida dos meus clientes estrangeiros é "meu amigo disse que simplesmente abrir uma LLC evita ter que pagar impostos de falecimento quando eu falecer".

Investidores estrangeiros que fiquem atentos: uma LLC não evita automaticamente o imposto de falecimento de 40% e a sucessão (o inventario). Vou repetir, uma LLC não evita automaticamente o imposto sobre a falecicmento de 40% e a sucessão (o inventario).

Uma LLC também não evita automaticamente a sucessão na Flórida. O seu contrato social (Operating Agreement) deve ser escrito de forma correta e especifica para ser efetivo.

Se você já abriu uma LLC, nem tudo está perdido. O que a LLC oferece como benefício para você como um investidor estrangeiro nos Estados Unidos?

1)                  A LLC é uma empresa de responsabilidade limitada, que significa que protege seus socios (proprietários) de ações judiciais e julgamentos contra a empresa, protegendo seus ativos pessoais fora da empresa.

2)                  Pode reduzir ou eliminar o imposto de falecimento em duas maneiras:

Cada estrangeiro tem um uma isenção de US $ 60.000 antes de ter que pagar um imposto de falecimento (estate tax) ao IRS a cerca de 40%. Este imposto é calculado com base no valor de mercado de certos bems nos EUA (ativos com base nos Estados Unidos – incluindo imoveis) menos a isenção.

Por exemplo: John Doe faleceu. Ele não é cidadão ou residente dos Estados Unidos. Se John Doe possuía um imovel nos Estados Unidos no valor de US $ 200.000, seus herdeiros poderão deduzir US $ 60.000 como sua isenção e seu patrimonio terá que pagar ao IRS aproximadamente 40% de US $ 140.000 = US $ 56.000 em impostos.

Então, a PRIMEIRA possibilidade é: se esse imovel fosse propriedade de uma LLC com vários socios, cada socio possui uma isenção individual de US $ 60.000. No caso de John Doe, se a LLC tivesse 4 socios, o valor total protegido poderia ser de até US $ 240.000 (US $ 60.000 x 4). Se um socio falecesse, apenas a participação de ¼ desse socio na LLC ficaria sujeito ao imposto sobre o patrimonio, mas coberto pela isenção individual desse socio.

A SEGUNDA possibilidade é: a legislação tributária dos Estados Unidos não é resolvida se uma LLC esta sujeita ao imposto de falecimento. A questão é se uma LLC de vários socios, tipicamente tributada como uma sociedade (partnership), está incluída como um ativo intangível de pessoas estrangeiras para calcular o imposto sobre o patrimônio. Isso significa que não há jurisprudência disponível hoje para determinar o sim ou não.

O imposto de falecimento provavelmente sera inevitavel se a LLC possui apenas um proprietário e é desconsiderada para fins fiscais. Mas, como tambem uma LLC com mais de um socio pode ser tratada como patrimonio nos EUA, existe o risco de dever o imposto se você possui um imovel através de uma LLC.

3)       Um contrato social (Operating Agreement) devidamente preparado por um advogado para a sua LLC pode evitar a sucessão. Este não é o contrato social básico. Após uma decisão judicial em 2015, um juiz da Flórida determinou que, se houver uma provisão de Transferência sobre Morte que forneça ações da LLC para "ser entregaue imediatamente" nas mãos de beneficiários, a transferência de ações passará aos herdeiros sem necessidade do processo de sucessão (probate).

Para discutir as opções de planejamento para reduzir e /ou evitar impostos sucessórios e impostos de falecimento após sua morte, consulte um advogado experiente em planejamento imobiliário internacional. Seu investimento para o planejamento de hoje salvará sua família e entes queridos de muito estresse e custos extremamente elevados no futuro depois que você falecer. Ligue para advogada Paula Montoya no (407) 906-9126 hoje para marcar uma consulta para proteger seu investimento.

Estate Planning for Non-U.S. Citizens: The Qualified Domestic Trust

If you own assets in the U.S. but you are not considered a U.S. citizen or permanent resident alien (with a green card), you are not given the same advantages when it comes to taxes as a regular U.S. citizen, and you could be subjected to very different and considerable estate taxes upon death.  As of 2017, the approximate exemption for the estate tax is $5.49 million, and instead of being given this large exemption, nonresidents are entitled to only $60,000 in exemptions.  What does this mean for you?  If you are not a U.S. Citizen or a permanent resident alien, you can only protect $60,000 worth of assets from potential estate taxes!  Anything that you leave to your heirs when you pass away that is above and beyond the $60,000 exemption is likely going to be to be taxed at about a 40% rate.

I am often asked, by current or potential clients, about what kind of tax advantages are afforded to a U.S. citizen versus those who only possess a green card?  Luckily, if you are a green card holder (and similarly to a U.S. citizen) you are eligible for the $5.49 million exemption for estate tax purposes.  Unfortunately, as a green card holder you are not given the unlimited marital deduction.  This deduction allows the transfer of unlimited wealth and assets from one spouse to the other upon the death of one.  There are no taxes levied on U.S. citizens' spouses when they pass away, but if you are a green card holder you can incur substantial tax liability if your spouse passes away without the proper planning in place. This is especially true for non-residents who own a vacation home or investment properties in the United States that are worth more than $60,000.

It is worth noting that the best situation to be in when a spouse passes away is for both individuals to be U.S. citizens.  There is much more protection and shelter from taxes given to married couples that are both citizens of this country.  Unfortunately, if you are part of a marriage that has one citizen and one that is not, you can be exposed to a lot more tax liability.  

However, not all hope is lost!  There is substantial planning that can be done to minimize the tax liability that this type of couple would otherwise be exposed to.  The first step is to learn about and put in place what is called a "QDOT" or Qualified Domestic Trust.  Establishing a QDOT will allow the spouse that is a US citizen to leave all assets to the non-citizen and will also allow non-resident spouses to transfer an unlimited amount to each other upon the death of the first spouse without paying the tax.  

Establishing a QDOT takes significant planning and there are special requirements that need to be met in order to set up this type of protection properly.  If your QDOT is established correctly, the surviving spouse will not owe the U.S. Government any form of estate tax.  However, the taxes that would be due without the QDOT in place would then be payable upon the death of the surviving spouse. It is important to keep in mind that the Qualified Domestic Trust is only available between spouses.

If you live here and are on a visa or have a green card and are not a U.S. citizen, it is imperative that you consult an experienced international estate planning and immigration attorney that has dealt with these types of scenarios in the past.  You have every right to minimize your estate tax upon death and to leave your descendants with the maximum amount of assets.  Give us a call today so that we can discuss your estate planning in more detail.