Specific funding of assets must be approached on a case by case basis. The information in this section of the manual is general in nature. If you have a revocable living trust, and have received an Operations Manual or Funding Memorandum for that trust, you will notice that much of the funding information in this document may differ from the information in that manual. To that extent, these instructions override the funding instructions contained in the manual that came with your revocable living trust.
It is important that after forming your Wyoming LLC , it be funded in order to obtain the benefits of the LLC structure.
Funding is transferring ownership of assets to the LLC. Funding is an essential part of planning since only those assets that have been transferred into the LLC will realize the intended benefits.
It is not unusual for insurance companies, some banks, and other institutions to require you to complete one or more of their own in-house forms in addition to the form that your attorney might provide. It is recommended to take any bank transfer forms directly to the bank, savings and loan, credit union, or other financial institution so that you can sign the new signature cards and complete any in-house forms required. In the case of insurance companies, it is better to complete the forms and then forward them directly to the home office of the insurance company. You will find the name and address of the insurance company somewhere on your insurance policy or on a premium notice. If you have an established relationship with a life insurance agent, request him or her assist you.
Changing title to publicly traded securities is not necessarily easy. A signature guarantee from a bank officer or broker-dealer may be required; otherwise these forms will not be accepted by the securities transfer agent. Therefore, do not sign stock certificates until you are in the presence of one of these advisors. If you have a stockbroker, financial planner, or other investment advisor, he or she should be able to handle all transfers of securities for you. Most securities transfer agents today require a “Medallion Guarantee”. A Medallion Guarantee is a guarantee that is given by a financial institution that has a proven level of financial stability.
Contribution of real estate or contracts can be complex. Real estate transferred without lender consent can cause acceleration of mortgage debt. Contribution of leases or other contracts can void or change the terms between the parties. Contribution of tax deferred installment notes can result in the acceleration of the recognition of the deferred taxable gain. .
If you do not want to be burdened with handling all the paperwork involved in getting these transfers made, your attorney can prepare documents for you and take care of getting the transfers made. If you prefer, your other advisors including your life insurance professional, financial planner, or CPA may assist you with transfer of certain types of assets.
The LLC must submit form SS-4, titled “Application for Employer Identification Number” to the Internal Revenue Service to obtain a taxpayer identification number. Each LLC and each other business entity and some trusts, owning an interest in the Wyo LLC , must have its own Taxpayer Identification number.
By default an LLC is taxable as a partnership. In this case, a Form 1065 U. S. Partnership Tax Return must be filed by April 15 of each year and the Tax Matters Member must issue each member a Form 1065 Schedule K-1. Each member must use the information from the Form 1065 Schedule K-1 to report LLC tax information on their annual IRS Form 1040, 1041, 1120, or 1065 Tax Return as the case may be. Remember to file the appropriate tax return if your LLC is taxable as something other than a partnership, i.e. a disregarded entity or corporation.
When the LLC acquires a new item of property or open a new account, be sure to acquire it in the name of the LLC . The sale of an LLC asset will require that the entity pass good title to the sold asset. Remember to review such transactions with your attorney or CPA prior to executing them if you don’t know or are uncertain about legal or tax ramifications.
An unfunded LLC is unable to provide you with the benefits available through the use of the LLC. Creation of the LLC is the first step to success, while funding is the second step. Also, LLC ownership interests should be properly documented once asset contributions have been made to the LLC and accepted by LLC. Proper funding of the LLC is a client responsibility.
In general, an LLC is funded by taking title to assets in its name. Transfers are generally accomplished in the same manner by which title was originally obtained. For example, when you acquire land you receive a deed. Similarly, the LLC would receive a deed from the contributing real property owner.
Normally, the LLC should hold title to assets as follows:
(Company Name) , a Wyoming Limited Liability Company.
However, when titling real estate, a real estate attorney in the state where the real property is located should be consulted to determine the preferred titling method.
The following discussion will cover many types of assets an LLC may own or acquire. Refer to the type of asset involved for funding instructions for that asset.
Untitled tangible business property owned by the LLC includes things such as business equipment, inventory, farm equipment, livestock, and crops on hand. Since such property is usually held without any recognized document of title. Transfer of this type of property is best accomplished with either a Bill of Sale or an Assignment, transferring the items into the LLC. Do not transfer personal use property such as home furniture, household goods, or other items you personally use, into an LLC.
Titled tangible business property includes things like cars, boats and boat trailers, motorcycles, motor homes, and airplanes. These assets have a certificate of title or other document of title showing who owns the asset.
When you transfer a motor vehicle to any other party or entity, contact your insurance agent and ask the agent to make sure the new owner is shown as the insured on the vehicle insurance policy. It may be that transferring automobiles to an entity will cause your insurance rate to change. Therefore, check on this prior to transferring automobiles. You could also incur transfer taxes if this is not properly done. We recommend that the title to any potential liability producing assets be transferred to a separate entity which may be entirely separate or subordinate to your LLC.
Real estate must be conveyed by a deed. Only investment real estate is normally transferred to an LLC. Your residence is normally titled in your revocable living trust or in your own name.
It is critical that any property conveyance be properly drawn, and that it correctly designates the grantor and the grantee. Rules of conveyance can be a pitfall for “do-it-yourself” advocates, so be very careful in transferring real estate without the assistance of an attorney licensed in the state where the real estate is located.
When you transfer real estate to any other party or entity, contact your insurance agent. Ask the agent to make sure the new owner is included as an “insured” or as an “additional insured” on the insurance policy for each piece of property transferred.
Warranty deeds, transfers of lien, mineral deeds, and transfers of oil and gas leases necessary to transfer your real property and related holdings into your LLC are normally documents that an attorney must prepare and that must be recorded.
If in the future, you should sell any real estate that is in the LLC, or desire to purchase in-state real estate in the name of the LLC, contact your attorney for assistance. A lawyer licensed in the appropriate state must prepare out-of-state real estate deeds.
CAVEAT: Mortgaged Real Estate . If you have a mortgage on your real property, it is advisable to seek prior approval from your lender prior to recording the warranty deed. It is essential that you bring your deed of trust or mortgage to your attorney for review to make certain there is no prohibition against transferring the real property into the LLC. Violation may result in acceleration of the mortgage or trust deed through “due on sale” clauses in mortgages or trust deeds that encumber the property. Approval is almost always granted because the conveyance does not release existing liability on the debt secured by the encumbrance.
Every lending institution has different rules and regulations. If you are unsure about any mortgage, it is better to seek permission from the lender prior to recording the deed to the LLC. If the lender will not consent to the transfer to the LLC, then do not record the deed ! Simply keep the deed with your LLC papers and attach a signed and dated memo to it indicating that the deed was intentionally not recorded.
Under the laws of many states, it is not necessary to record the deed for the transfer of real estate to your LLC to be effective for transfer purposes. It is, however, necessary to record deeds for creditor protection purposes and to avoid title problems. Holding unfilled deeds can be a risky action to take.
Stocks and bonds and other securities are often transferred to an LLC. Your stockbroker, the issuing company, or a designated transfer agent will need to register these assets in the name of the LLC. If you have a stockbroker, the stocks may be held in a “street name account,” a brokerage account in the LLC name with the actual stocks held in the brokerage company’s name. This is the safest way for you to own stock, and there should be little or no cost to you to have the title changed to the LLC.
Government bonds may be re-titled in the name of the LLC by completing an application form that may be obtained from:
Bureau of Public Debt
200 3rd Street
Parkersburg, West Virginia 26101
Attention: Transactions and Rulings.
Alternatively, you may be able to find a bank that will handle such transfer for you. US Government Bonds should normally be transferred to your LLC formally, rather than retained in the name of a Member as nominee, unless the total value of such bonds is very minimal.
Unregistered bonds (such as municipal bonds and unregistered treasury bonds) may be assigned to the LLC through use of a separate piece of paper signed by you and attached to the bond. It can be typed or handwritten.
Business assets may be transferred as follows:
Business assets such as a sole proprietorship for which you use a trade name can be transferred to your LLC as follows:
“I hereby sell, transfer, assign and convey all of my right, title, and interest in and to [business trade name] to (Company Name), a Wyoming Limited Liability Company.”
Your Name Here
After assignment of such assets you should file a new trade name affidavit or form with the State and/or any other assumed or fictitious name filing governmental unit, to reflect that your LLC is now the owner of such business.
You can also transfer other LLC, corporate, or partnership interests to your LLC by an assignment of such interests. Be sure that a review of other entity agreements is done to determine what type of consents to such assignments may be required so that the necessary consent documents are properly prepared and signed by all of the required parties.
With any stock that is subject to a buy-sell agreement, or subject to a shareholder agreement, a proper type of assignment of such stock will be necessary. Make sure that a stock power is signed and an amendment is made to the agreement that recognizes the LLC as the new shareholder.
Do not transfer S Corporation stock or IRC Section 1244 stock to an LLC without consulting your tax advisor. S corporation stock should generally be transferred to an intentional grantor trust such as your revocable living trust.
Professional Corporation stock cannot be transferred to an LLC.
Other small corporation stock can be transferred to an LLC. Use a stock power or assignment like that mentioned above for other corporate stocks.
Savings accounts can be titled in an LLC by executing a new signature card with the financial institution in which the funds are kept. The ownership of a checking or savings account is determined by what appears on the signature card on record at the bank. While it is not important that the LLC name appear on your checks, it is important that the LLC name appear on your monthly account statements.
A certificate of deposit can sometimes be assigned to the LLC without penalty. To be sure there is no penalty, check with the financial institution before making the transfer. Otherwise, to avoid a penalty wait until the certificate matures and then take out a new CD titled in the name of the LLC.
An assignment of the CD to the LLC can document the intended transfer in the interim. The assignment may then be attached to the Certificate of Deposit with a paper clip and retained with the Certificate. When the new CD is formally reissued in the name of the LLC throw away the assignment.
Notes and security instruments such as mortgages and trust deeds can be transferred to an LLC. Notes are assigned subject to their terms or any restrictions.
A formal assignment should be used to transfer a mortgage or trust deed to the LLC. It may or may not be necessary to record such an assignment, but the original should be placed with the original note and security instrument to form a complete chain of title when it comes time to cancel or release the indebtedness and encumbrance.
Life insurance policies have both an owner and at least one beneficiary. Policies may be assigned to the LLC. Your life insurance agent would provide necessary forms to make the LLC the owner and the beneficiary of the policy. You will need both a Change of Beneficiary form and a Change of Ownership form.
Do not transfer annuities into your LLC without tax or legal advice about the consequences. There are special rules that apply to annuities, and you may lose the tax benefit of deferral of income taxes on earnings within the annuity if you transfer it to your LLC.
Do not transfer any IRAs or retirement plan assets into your LLC without tax or legal advice. There can be significant adverse income tax effects if you transfer such assets. There are potentially some strategies that use these assets with an LLC, but the facts must be carefully considered prior to making such transfers.
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