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.
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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4 lawyers agree
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.
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Estate Planning Attorney
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.
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