One brother wants to take over the other brother's business without getting nailed with too much wealth transfer tax.

QUESTION.
I need advice from an attorney on changing the name of an existing LLC owned by my brother and then forming a second (new) LLC with the name of the old LLC. What is the most straightforward process to do such a thing?

ANSWER.
To accomplish what you want to do you only need to contact your State's secretary of state and change the primary contact or owner of the existing LLC from your brother to you. Then your brother needs to form a new LLC. The State's business records dept isn't going to have a problem with you doing this. However, the IRS and the State's taxing authorities might have a problem with this because in effect your brother is giving you an asset (a business) that you never owned before. Transferring title of a business from one person to another is a taxable event. Let's say the business is worth $100,000. By transferring the business to you the IRS will argue that your brother just gave you $100,000, and the transfer would be subject to a gift tax. If your brother had recently died and left the business to you in his will, then the business would be subject to an estate tax.

The normal way to go about all this and avoid tax issues is for your brother to file for a ficticious name which is owned by the existing LLC. Then your brother does business under the ficticious name and ceases to do business under the original name. You will need to form a new LLC with a new name. Your brother's LLC will license the old name of his LLC to your new LLC which in turn uses the name for some of its marketing efforts. Eventually you will stop using the licensed name in your business. When your new LLC's name becomes popular enough and the old name isn't needed any longer to draw business you'll be set. The licensing fee need not be very much - a nominal amount.

You'll probably need to visit an attorney to help you accomplish all of this. As a SCORE counselor I'm not supposed to provide free legal advice. I'm just a business coach. I hope my comments are helpful to you. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com