What Is an LLC?

LLC means “limited liability company.” So what?

LLCs play an important role in charitable gift planning.

  1. A charity may want to establish an LLC to receive gifts of real estate, for example.
  2. A donor may want to follow Mark Zuckerberg’s lead and create an LLC as a vehicle for making charitable gifts.
  3. An individual may want to donate units (as they’re sometimes called) in an LLC.

Why a charity may wish to create an LLC. For a charity, accepting a gift of real estate may be beneficial, but it also may be risky. To deflect risk, a charity can establish a single-member LLC of which the charity is the single member. Real estate donated to the LLC is deemed given to the charity for federal tax purposes, meaning the donor can get a charitable deduction. The LLC, however, shields the charity from liability associated with the real estate while allowing the charity complete control over the LLC.

A “charitable LLC.” Mark Zuckerberg transferred billions of $$ to an LLC he created. This did not generate a charitable deduction. Gifts by the LLC to charities will generate charitable deductions for Mr. Zuckerberg, however. So there’s no magic here. After all, Mr. Zuckerberg could make those gifts himself.

Mr. Zuckerberg did get to say he had transferred billions of $$ for charitable purposes (or some such thing). Mr. Zuckerberg also retained control over the transferred billions of $$ for investment and other purposes, which was better for him than giving to a DAF.

A charitable gift of LLC units may cause tax problems. Why? Because such gifts are ordinarily treated for tax purposes as gifts of partnership interests, and that type of gift can be extraordinarily complex, messy and unfavorable for both the donor and the donee.

The details here are potentially immense … too great to discuss in what remains of this blog. We’ll look at the salient details next time.
 

By Jon Tidd, J.D.
 

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