Recent federal tax law changes provide important reasons to consider changes to LLC Operating Agreements for multiple member limited liability companies and for partnership agreements. Estate plans also should be reviewed and in many cases revocable living trust documents should be amended.
The 2017 Federal Tax Act has provided another major income tax reason to consider reviewing and amending LLC Operating Agreements. As readers of the Commentator will recall, the 2016 Partnership Tax Audit rules (and subsequent changes) first apply for 2018 tax years and provide important reasons to amend Operating Agreements of LLCs taxed as partnerships and partnership agreements. See “New Tax Partnership Audit Rules: New Rules Require Changes to Operating Agreements of Multiple Member LLCs and Partnerships,” Acker, Kemp Klein Commentator, 2017 Issue 3, Summer/Fall 2017 at https://kkue.com/resources/newsletters-articles/.
Estate Planning Review.
The 2017 Act has reduced federal estate tax exposures for many taxpayers (at least until 2026), and expanded estate planning for income tax savings. Now, estate plan documents should be reviewed to make important changes to trusts to seize income tax savings opportunities and cost efficiencies.
For many estate plans, depending on client priorities, the structure of marital trust and family trust allocation provisions should be amended to capture potential substantial income tax advantages for beneficiaries.
LLC Operating Agreement Review.
Likewise, as part of this estate planning, LLC Operating Agreements should be reconsidered, and many should be amended to restructure member rights important in valuation of LLC member interests.
Under prior law, member transfer and termination rights were important reasons for the application of valuation “discounts” that were favorable in reducing federal estate tax. Now, income tax planning for opportunities under the 2017 Act make the application of “discounts” unfavorable in many cases at death. Discounts are not optional, nor applied based on election, but rather are based on applicable facts and rights established by the LLC Operating Agreement.
Kemp Klein attorneys are ready to assist you with the analysis and amendments needed.
For further information regarding these matters, please contact Mr. Acker at 248.740.5665 or via email.