OWNERSHIP OF LLCs UNDER THE FLORIDA UNIFORM TRANSFER TO MINORS ACT
The Florida Uniform Transfers to Minors Act (“FUTMA”) provides a relatively straightforward way to give a minor an ownership interest in assets while maintaining control until the minor reaches the age of majority. Most people who establish FUTMA accounts for children do so with cash or marketable securities.
FUTMA, however, does not limit the type of asset that a custodian can hold for a minor. In fact, FUTMA defines “custodial property” as “any interest in property transferred to a custodian under this act and the income from and proceeds of that interest in property.” In other words, FUTMA authorizes a custodian to hold virtually any type of property for a minor. This could include interests in real estate; personal property; business entities, such as limited liability companies and corporations; intangible property such as proprietary rights, licenses, and intellectual property rights. The key to owning such an interest in property as a custodian for a minor is to clearly note that the custodian is holding the asset for the minor. FUTMA provides that a custodial ownership interest for the minor be clearly stated.
As above stated, if you wanted to give an interest in real property to a minor, you could. The deed would note that the interest in real estate was being held for the minor as by a custodian under FUTMA. Moreover, most of us do not own investment or commercial real estate individually, but instead, do so through an entity (such as a limited liability company) in order to limit liability and to meet certain asset protection objectives. If an interest in the real estate is being gifted, it may also be beneficial to make the gift through an LLC because certain valuation discounts for tax purposes may be available. The gift of real estate could be made by giving an interest in the LLC to the minor held by a custodian.
A gift of an interest in an LLC to minor is not limited to LLCs that hold real estate. Almost any interest in an LLC, corporation, or other type of entity can be given provided. The entity may own interests in other entities, brokerage accounts or other assets. One could even provide a minor an interest in an operating business (whether this is advisable should be discussed with an attorney and tax professional). The gift must be well documented. It is important that the operating agreement, shareholder agreement, or bylaws specifically acknowledge that the interest is held by a custodian for a minor.
By way of example, the custodian could convey assets to an LLC. In exchange, the LLC would issue a membership interest in the LLC to the custodian to hold for the minor. After the capital contribution, the LLC would acquire direct title to the assets and the custodian would hold a membership interest in the LLC as custodian in keeping with FUTMA. Neither FUTMA nor the LLC Act prohibits the issuance of membership interests to the custodian for a minor person. The transferred assets in the LLC would be managed by a controlling member or a manager other than the minor, usually the custodian or the child’s parent(s). When the child reaches the age of 21, the custodian would transfer the membership interest to the minor who is now an adult.
This structure is legally viable and permissible under Florida law. Under Section 710.111 of FUTMA, custody over a minor’s property is created when a transfer of an interest in property is made to a named custodian for the benefit of a minor. A membership interest in a Florida limited liability company is personal property pursuant to Section 605.0501 of the LLC Act. Accordingly, a custodian may properly hold a membership interest in an LLC as custodian for a minor.
Finally, and consistent with Section 710.123 of FUTMA, once the minor attains the age of majority, the custody of the interest in the LLC terminates and the custodian is required to assign and transfer the membership interest in the LLC to the minor. The LLC, under the management of the controlling member or manager, however, will continue the direct ownership interest in the assets even after the minor reaches the age of majority under FUTMA. The child will obtain all rights associated with the interest, which may include the right to vote the interest in the LLC or to otherwise participate in the LLC as a member.
While authorized if setup properly, this is a technical relationship that must be well documented. Accordingly, it is important that the relationship be governed by written documents (e.g., an operating agreement) between all the respective parties. This structure will not work by merely filing barebones articles of organization with the Florida Secretary of State. The attorneys at MacLean and Ema, P.A. consider these issues on a case by case basis and will advise you of all your options. Please call to discuss how the use of an LLC may be helpful to your situation.