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Permalink Reply by Johnson on July 18, 2008 at 7:38

At what rate is inheritance taxed?

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Permalink Reply by Ladyoaks on July 18, 2008 at 8:40

Question is how do you set up the LLC? There will be taxation if you "gift" over LLC interests to the next generation.

For example:
Parents own land; put into LLC; grant kids in the formation a 25% interest. The IRS/La State will want to know the value of that 25% interest. Thus, you will have to come up with a FMV of the interest, which is likely to be over the $12K per year that is permitted.

Inheritance tax is about 40%. You have an exemption however for the first $1.5 million or so.

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Permalink Reply by JWS3 on July 18, 2008 at 10:51

Not if Obama is elected!

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landownerPermalink Reply by BLZBub on July 19, 2008 at 1:56

Read that Obama's plan is to increase life time exclusion to 3.5 Mil & tax everything after that @ a 45% rate. McCain would have the same exclusion, but tax rate would be 15%. VOTE FOR MCCAIN if you want to keep your royalty money.

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Permalink Reply by Mit on July 18, 2008 at 12:15

Currently, there is no inheritance tax for 2010. It is a loophole that currently exists, but could be closed next year. In 2011, the rate will return to pre-Bush tax cut levels as high as 55%.

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Permalink Reply by Skidmark on July 18, 2008 at 12:20

Yep - there will be alot of plug-pulling in December 2010.

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Permalink Reply by donm on July 18, 2008 at 12:22

There is no inheritance tax in Louisiana. If you have enough to be concerned about at the federal level seek legal counsel and counsel from a CPA.

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landownerPermalink Reply by insomniacnla on July 18, 2008 at 13:34

Did you see Ms. Fraizer? She told me that the LLC had to be set-up BEFORE any drilling but not before any signing bonus.

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Permalink Reply by cavalier333 on July 18, 2008 at 13:38

Why does the LLC have to be set up before drilling? What if drilling has already commenced? Should an LLC still be set up?

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Permalink Reply by Skidmark on July 18, 2008 at 18:09

If this is for estate planning purposes, the play is to freeze the value as soon as possible and shift the growth to the kids. The earlier in the process the better.

Perhaps the most successful estate planning ever was done by Sam and Helen Walton, who employed this value freeze approach. At a very early stage of the company's growth, they gave 80% of the stock to their kids. As a result, all the subsequent growth on that 80% was kept out of their estates.

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Permalink Reply by Ladyoaks on July 18, 2008 at 21:19

Skidmark's comments are consistent with my example previously. It is not a 'freeze' approach. However, what you are doing is granting over the LLC interests to the third party (or next generation) at a lower valuation.

Any adverse tax consequences will be considered at the time of grant at the lower value. Following the grant, and the drilling on your land, the value of the LLC interests will rise. They will not be frozen at the LLC formation value...difference is you will already have transferred the value to the third party/next generation.

ALL of this however, assumes that the party forming the LLC is willing to give up some economic interest in the value of the assets that you are dropping into the LLC. Some may be...others may not.

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landownerPermalink Reply by Gone Fishin on August 3, 2008 at 14:50

What about instead of inheritance, using a charitable trust and then taking and insurance policy from proceeds. the insurance is tax free when paid to the heirs.. I dont completely understand it. but i understand it is an option.

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