member LLC. Normally a charging order is the exclusive remedy and will only allow the creditor to obtain certain distributions from the entity, if any; but not the assets. In such cases, generally the creditor would receive a taxable event (RevRule 77-137) upon the issuance of a charging order (as constructive income), even if he/she receives nothing.
Two words: Warning, PROBATE! The old-faithful estate planning tool, the
Will, is often times not the appropriate estate planning choice in modern times. With
modern business or estate planning, the Revocable Living Trust (with a Pour-Over-Will) is often the best choice. The historical Will is possibly the simplest document to implement, however, it does not avoid Court Probate. The Will may cost your family great Probate expense (2-10% of the gross value), delay and court battles (with Will challenges and lawsuits). However, the marital deduction provisions often used in Revocable Living Trust may also be used in the Will, but probate, its delay and costs will
not be avoided by doing so. For an article on the losses incurred by using Wills, see:
Celebrity Wills And Trusts!
Legal & Financial Health Check-Up on
11A. The Corporation: "C" Corporation. The "C" corporation is often the best entity for
front line business operations that can afford maximum tax write-offs (however, the Sub- Chapter S ( ) is getting closer, year after year). Corporations are often used to operate a business with limited liability, and to divide up your business activities for creditor and lawsuit protection reasons. It is often beneficial to segment your "risky" business activity (or assets) from your "safer" activity (or assets), or to have certain corporation(s) act as partner(s) to other devices. The "C" or "S" corporation may be used to as your front line
business entity, which in this day and age, is expected to be sued.
The "C" corporation is often used to "conduct" business with minimum asset ownership. Certain capitalization rules must be satisfied with legal contributions, insurance and credit. The "C" corporation is often used to maximize corporate and "fringe benefit" deductions. However, if "C" deductions and fringe benefits are not used, the "C" corporation will be vulnerable to "double taxation" (taxation once at the corporate tax return level and again at the personal "wage" level). The corporation may have superior payroll tax opportunities. (See Sole Proprietorship vs. Corporations - Lower Corporate Tax Rates vs. Double Taxation - A Payroll Tax Comparison).
11B. "S" Corporation . Like the "C", the "S" is often used to achieve the same level of limited liability protection, but with less fringe benefit tax deductions. However, the "S" comes with pass-through taxation, which is often advantageous to many clients who expect (some) losses in the first years of operation, or use the "S" with other devices named herein, etcetera. The tax attributes of income, deduction, credit and loss are passed-through to the shareholder s personal tax return. The "S" corporation does have several limitations that you must be aware of, including but not limited to (a) limited loss deductions when debt is in excess of basis, (b) the lack of increase in basis due to entity level debt (whereas the LLC and FLP (LP) does not have such limitations), etc. For example, for basis reasons, an S owner should consider getting a loan personally (not the