Discussion:Gift of LLC interest to Minor Children

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Discussion Forum Index --> Tax Questions --> Gift of LLC interest to Minor Children

Bengoshi (talk|edits) said:

8 January 2007
Has anyone else had experience w/ a situation like this? Parents create a LLC that engages in active operations. Unfortunately parents use one of those online business forms services to prepare the operating agreement. In the agreement, parents give their MINOR children units in the LLC, even though children contributed no capital and likely will not ever be required to. The parents have put in quite a bit of capital to develop a website that sells its online content.

From my research, it seems that if the children received a capital interest, they may be recognized as a partner for income tax purposes, even though they acquired an interest by gift... But I still feel hesistant about this whole situation (should K-1s be issued to the minor kids, etc.)? What do you all think?

Dennis (talk|edits) said:

8 January 2007
You have options, depending on what parents want to do. All the transactions are in cash, so you don't have to worry about valuation, and you have $12K per child to play with for capital. Any difference can be booked to loans. If there is a loss, perhaps childrens' capital can be zero to save it. If there is profit you don't save a lot of tax but you do save SE. ♫

WesR (talk|edits) said:

8 January 2007
Hi regardless of the gift valuation you will give k-1s to the kids. Losses and profits will again be allocated dependent on the wording of the agreement. As to the gifting issues there may be no gift if the kids were given just a profit/loss interest versus a capital interest. So there are as noted above by dennis options or as I would say what does the agreement bestow upon the kids. bye

Bengoshi (talk|edits) said:

8 January 2007
Thanks for your comments Dennis and Wes. There are losses, so taxpayer parents would like the losses allocated entirely to themselves. I think I have to advise them to amend or restate their operating agreement though, as the boilerplate language isn't tailored to the situation. The kids are given "units" in the company, which "entitles the member owning such a unit to an economic interest...in the company." But there's no mention of what such a member would receive upon a dissolution and liquidation. The profit/loss allocation clause allocates income/gain, etc. pro rata in proportion to relative membership interests held by each member (another boilerplate clause).

Lesson to be learned: In general, don't use these dang online legal forms services unless you've got some really simple business.

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