Estate PlanningEstate TaxFamily Limited Liability CompanyNew York

New York Reserves Right to Subject Real Estate Owned By Single Member LLC to Estate Tax

A Single Member LLC

In a recent New York tax advisory opinion, TSB-A-15(1)M, the Commissioner of Tax and Finance stated that if a single member LLC owns an interest in New York real property, that property can be subject to the New York estate tax upon the death of the sole owner.

In this situation, the Petitioner had set up a single member Delaware LLC to own an interest in New York real estate. The Petitioner then wished to permanently leave New York to live in another jurisdiction.  New York has a state estate tax on real estate but it does not have an estate tax on intangible property.

Typically, an interest in corporation, partnership or trust is considered an interest in intangible property and therefore not subject to New York’s estate tax laws.  This raised the question of how to treat the interest in a limited liability company.  An LLC can be taxed as a partnership, a corporation, an S-Corporation or as a disregarded entity.  Single member LLCs are taxed as a disregarded entity unless the taxpayer elects to have it taxed differently.

The rationale behind the opinion in this case is that if the federal government disregards the entity for tax purposes, so should the state of New York.  Accordingly, if you own real property in New York and are not a New York resident, you should speak with your tax advisers about the best way to minimize your estate tax burden.

The nice thing about an LLC is that you can always make an election to have it taxed in a different manner simply by filing a form with the federal government.  By electing to have it taxed as a Corporation or S-Corporation, or by adding your children on as owners of the LLC and having it taxed as a partnership, the LLC will no longer be treated as a disregarded entity.

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