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How can I reduce the value of the assets in an LLC that I control?

San Luis Obispo, CA |

I want to reduce the value of the assets within an LLC as a risk management technique. I funded the LLC with real estate. Can the LLC borrow money from a sole proprietorship business that I also own? Would my risk be lower if the sole proprietorship has a lien on the properties? I plan to set up a payment plan and a note with market rate interest and terms.

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Attorney answers 4

Posted

You are really confused and need to get with a tax/estates attorney to discuss the specifics BEFORE you take actions that actually hurt you. Lowering the value of LLC assets that are already protected makes no sense. Borrowing money from your sole proprietorship and lending to an LLC makes even less sense. Planning should be done from an overall perspective, looking at the estate and income taxes and your actual financial goals. Get with an experienced estate and tax attorney to explore your goals and legal options and strategies.

Hope this helps.

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Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336, his email address is sjfpc@comcast.net , for more tax, estate and business articles visit his website www.sjfpc.com. and blog

LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

Posted

I agree with Attorney Fromm that you should consult with an attorney before taking any moves, along these lines. It is unclear whether the option you have selected makes sense in the overall scheme of things. This should be reviewed by a lawyer before you take any action.

Questions I would ask are: 1) Is there reason to believe that the assets in this LLC are at greater risk than expected? 2) Are there inexpensive alternatives to your scheme that would cost less and/or involve less complexity?

Making your risk zero is probably not economically feasible. There is an optimal level of risk vs. cost and an attorney can help you determine your best option for getting there.

James Frederick

*** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.

Posted

Get a valuation discounted appraisal.

Posted

Other attorneys have already pointed out that you appear somewhat confused and have gotten some things out of order. Clearly, you need to speak with an attorney, prioritize and straighten out your planning. What I can add to the discussion here is to directly answer your questions. You can hire an appropriate professional, such as an accountant and/or other appraisal expert(s) to adjust the value at which you are carrying your assets. Essentially, I glean that you are wanting to "mark to market." Secondly, the LLC can borrow money from what is essentially you running a sole proprietorship. You are creating what appears to be an arm's length transaction by using market interest rates and terms and securing your personal loan to the LLC by taking back a lien. The effect of your transaction, however, is to simply to give yourself power to foreclose on the LLC's property if it defaults on the loan. Also, you are stripping cash from the LLC. So, if you aren't the sole member of the LLC, which is what the other answers and I initially assume here, and are simply the manager, you are stripping the LLC of cash. So, ensure that you aren't running afoul of any fiduciary duties you owe the LLC as manager. I trust you now can see why everyone is advising you to seek competent legal counsel to straighten out what you are actually trying to accomplish. If you are as sophisticated as the question makes you appear to be, then you shouldn't be reluctant to pay a lawyer ad stop being penny-wise and pound foolish.

This writing is not intended to create an attorney-client relationship between you and W.R. Nichols & Associates, P.C., or Mr. Nichols personally. If you communicate with us in connection with a matter for which we do not already represent you, your communication may not be treated as privileged or confidential. In some jurisdictions this writing may be considered advertising. The hiring of a lawyer is an important decision that should not be based solely upon written information about our qualifications and experience. Advertising disclaimers are required in several states when law firms or attorneys indicate practice limitations or areas of concentration.

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