Parents who want to pass wealth to children often worry about handing over control too soon. A family LLC solves that, and it can also make every dollar of gift exemption go further through valuation discounts.
Key takeaways
- A family LLC with voting and non-voting interests lets parents gift ownership while keeping control of the assets.
- Non-voting, non-marketable interests can often be valued at a discount, so more value passes per dollar of exemption used.
- 2021 proposals to eliminate discounts on passive assets were not enacted; discounts remain available but require a qualified appraisal and careful structure.
Gift 50% of a $1 million LLC with a 25% valuation discount, and the reportable gift is $375,000 — not $500,000.
How a family LLC works
The family consolidates assets in an LLC with two classes of interest: voting (often 1–2%) and non-voting (the rest). Parents gift non-voting interests to children, using annual exclusions or lifetime exemption. Growth on the gifted interests happens outside the parents’ estate, while parents keep all voting control. If income allocations to the parents fall, a reasonable management salary can help.
How valuation discounts work
An interest with no vote and no ready market is worth less than its proportionate share of the underlying assets. So a 50% non-voting interest in a $1 million company might be appraised at a 25% discount, making the gift $375,000 instead of $500,000. The discount must be supported by a qualified appraisal and a real business purpose.
Current status
In 2021, the Build Back Better proposal would have disallowed discounts on transfers of “non-business” passive assets, such as marketable securities, held in a family entity. That provision was not enacted. Discounts remain available, but the IRS scrutinizes them, especially on entities holding mostly passive investments, so structure and documentation matter.
Where life insurance fits
With the federal exemption now $15 million per person, family LLCs are most relevant for larger estates and for clients who want to shift future growth out of the estate. Life insurance, often owned by an irrevocable trust, can provide liquidity for any remaining estate tax and equalize inheritances. See gifting strategies under the permanent $15 million exemption.
Frequently asked questions
What is a family LLC?
A limited liability company that holds family assets, typically with voting interests kept by parents and non-voting interests gifted to children.
Are valuation discounts for family LLCs still allowed?
Yes. Proposals in 2021 to limit them were not enacted, but discounts must be supported by a qualified appraisal and are closely reviewed by the IRS.
How big are family LLC discounts?
It depends on the assets and structure; the appraisal determines it. The example in this article uses a 25% discount for illustration.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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