How Can Business Owners Minimize Estate Tax Through LLC Structure?
July 2, 2025
Estate taxes can significantly reduce the value of what a business owner leaves behind. For those who’ve built successful companies and accumulated wealth, estate taxes can feel like a penalty for success. In Florida, while there's no state-level estate tax, the federal estate tax still applies, and business owners often look for smart legal tools to help reduce that burden.
The LLC structure can offer more than just liability protection and operational flexibility—it can also be a strategic tool to help reduce estate taxes. At Eric H. Light, P.A. in Boca Raton, Florida, I work closely with business owners to develop estate planning strategies that protect their assets, minimize estate taxes, and support long-term family goals.
Why Estate Taxes Matter for Business Owners
If you’re a business owner, the value of your company might make up the bulk of your estate. That’s a good problem to have, but it can also lead to a large estate tax bill when you pass away. The current federal estate tax exemption is high, but it's set to decrease in 2026 unless Congress acts. That means more estates will be subject to tax shortly.
Because business assets are often illiquid, your heirs might have to sell off parts of the company just to pay the estate tax bill. That can force families to make difficult choices at an already stressful time. Using tools like LLCs within your estate planning can help avoid these situations by reducing taxable value and giving your heirs more flexibility.
How an LLC Fits Into Estate Planning
A limited liability company isn’t just for startups or real estate investors. In estate planning, LLCs offer flexibility in ownership, income distribution, and control. Business owners can transfer membership interests in the LLC to family members over time, using their annual gift tax exclusion and lifetime exemption.
LLCs are especially effective for closely-held businesses and family-run enterprises. When you transfer minority interests in the LLC, those interests may qualify for valuation discounts due to a lack of control and a lack of marketability. These discounts can substantially reduce the value of the gift for tax purposes, which in turn helps lower the overall estate tax exposure.
Key Benefits of Using an LLC to Reduce Estate Tax
There are several specific reasons why LLCs are effective for estate planning. Each one can support your goal of reducing estate taxes while maintaining control and continuity.
Lower taxable estate value through gifting:
Business owners can transfer portions of the LLC to heirs over time.
Each transfer can use the annual gift tax exclusion (currently $18,000 per recipient in 2024).
Larger gifts can use the lifetime gift and estate tax exemption without immediate tax.
These gifts reduce the value of the estate, lowering future estate taxes.
Use of valuation discounts:
Minority interest discounts apply because small ownership stakes lack control.
Lack of marketability discounts reflect the difficulty of selling private LLC interests.
Combined, these discounts can reduce the value of gifted interests by 20% to 40%.
Retain control while reducing estate size:
By keeping the managing member role, the original owner can stay in charge.
Beneficiaries receive economic benefits but not operational control.
This structure allows for a gradual wealth transfer without giving up business decisions.
Simplify asset management and protection:
An LLC can consolidate multiple business or investment assets into one entity.
This structure simplifies recordkeeping and income distribution.
It can also provide a layer of protection from creditors or lawsuits.
Combining multiple assets under one LLC can streamline your estate planning and make ongoing management more efficient.
How to Structure the LLC for Estate Planning Goals
The way you set up and manage the LLC will determine how effective it is for estate planning. This isn’t a one-size-fits-all solution. It needs to reflect your business assets, family situation, and long-term goals.
Choose the right ownership structure:
Divide membership interests into voting and non-voting shares.
Keep voting control with the founder or managing member.
Use non-voting shares for gifts or transfers to family members.
This division allows you to gift interests without handing over decision-making power, which is helpful if your beneficiaries aren't ready to run the business.
Draft an operating agreement that supports your plan:
Clearly define rights, responsibilities, and restrictions on transfers.
Include provisions that limit sales outside the family.
Add rules for how and when members receive distributions.
A well-crafted operating agreement is the foundation of an LLC-based estate planning strategy. It helps avoid confusion and keeps the business running smoothly.
Consider forming a family LLC:
A family LLC is used primarily for estate planning and asset protection.
It typically includes the business owner, spouse, and children.
All assets are managed through the LLC, and membership interests are transferred over time.
This approach works well for business owners who want to transfer wealth gradually while keeping everything organized within one family entity.
Plan gradual transfers of ownership:
Start gifting interests early, over many years.
Use annual gift exclusions and part of the lifetime exemption.
Consider using trusts to hold the interests for younger or less experienced heirs.
Gradual transfers allow you to take full advantage of tax exclusions while setting your heirs up for long-term involvement in the business.
Transitioning from Owner to Advisor
One challenge business owners face is how to transfer control without losing influence. The LLC structure helps smooth that transition. As managing member, you can continue running the business day-to-day, even after transferring most of your ownership. This lets you mentor the next generation while reducing your estate’s taxable value.
Eventually, you may step down from the managing member role and move into an advisory position. That shift can be built into the LLC operating agreement or time-based on milestones. The flexibility of the LLC structure makes this possible without triggering unintended tax consequences.
Common Mistakes to Avoid
Even though LLCs offer many benefits for estate planning, they must be used thoughtfully. Poor structuring or lack of planning can cause problems down the line. Here are a few pitfalls to avoid:
Not formalizing the LLC properly:
Skipping legal paperwork can leave the LLC structure open to challenges.
Failing to create a clear operating agreement invites disputes.
Transferring interests too quickly or without a plan:
Rapid or large transfers might trigger gift taxes or reduce flexibility.
A gradual, strategic plan works better for most families.
Mixing business and personal expenses:
This can undermine the integrity of the LLC and expose it to legal issues.
Keep LLC finances separate from personal accounts at all times.
Overlooking state-specific issues:
Florida doesn’t have a state estate tax, but the federal tax still applies.
Some techniques used in other states may not work the same way in Florida.
Every estate planning decision should be made with Florida-specific laws in mind to avoid missteps. For more information, contact Eric Ligh, Esq., Attorney at Law.
Trusts in LLC-Based Planning
Trusts and LLCs often work well together. You can transfer LLC interests into a trust to provide additional control, privacy, or asset protection. For example, a grantor-retained annuity trust (GRAT) or an irrevocable trust can hold the LLC shares while limiting your taxable estate.
This layered approach to estate planning can help business owners fine-tune their strategy. You can give your family access to the economic benefits of your business without handing over full control. And with the right structure, you can do it in a way that reduces both gift and estate taxes.
Florida-Specific Considerations for LLC Planning
Florida is an attractive state for business owners, especially when it comes to estate planning. With no state-level estate or inheritance tax, Florida residents can focus purely on federal tax strategies. That said, Florida has its own rules about LLC formation and asset protection that should factor into your planning.
For example, Florida offers strong protection for LLC members from creditors. That means if one member is sued personally, creditors usually can't seize the LLC’s assets—only the debtor’s interest. This makes the LLC a useful asset protection tool as well as a tax planning vehicle.
Reach Out Today
Using an LLC as part of your estate planning can be a smart move for Florida business owners looking to reduce estate taxes and preserve family wealth. By shifting value, taking advantage of valuation discounts, and retaining control while you're still in the business, the LLC gives you powerful tools to manage both taxes and family transitions. If you need assistance with estate planning in Boca Raton, Florida, contact Eric H. Light, P.A., today.