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In order for a child to obtain income by owning a "membership

Customer Question
with a travel company (club)...
In order for a child to obtain income by owning a "membership with a travel company (club) that produces multilevel income (major amount), I would like to set up an LLC with the child as a member (perhaps with his father as a LLC member trustee with the child being beneficiary untill legal age) and purchase the Travel membership in the LLC's name.

This way, "The Child," could be accumulating income till he reaches legal age. The LLC would be taxed as a corporation, basically holding the income etc. However, I was originanlly planing to have the Childs father be the "managing member" in the first place with a 1% interset (or perhaps a bit more say up to 10% interest) and the child basically having the rest of the interest in the trust portion.

I guess the question is "How could the father be in the role of the managiing member and also be the non managing member that represents the trust. AND if he can't, perhaps his mother could then instead take on one of the roles as either the managing member or perhaps the Trustee of the trust to make it possible for the child to be a member.

The Idea would be basically to turn the whole LLC over to the Child when he was legal age, with there being MAJOR funds in the LLC's accounts.

Any thoughts?

PS: I am the Childs Greandfather and also can't be an LLC member - because of conflicting interests with my own existing memberships with the Travel company mentioned above .
Submitted: 7 years ago.Category: Business Law
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9/2/2010
Business Lawyer: Richard - Bizlaw, Attorney replied 7 years ago
Richard - Bizlaw
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Satisfied Customers: 10,705
Experience: 30 years of corporate, litigation and international law
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You could just have the child be a member of the LLC with the father as the managing member. If you have the LLC taxed as a corporation, you will introduce double taxation when it comes time to take the funds out. His parents as legal guardians of the minor can place the funds that are disbursed in an account for the benefit of the minor until he reaches majority. You do not need to create a trust. The child will be taxed at the rate of the parents which may well be lower than the corporate tax rate.

 

This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

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Customer reply replied 7 years ago

I perhaps should have mentioned that the Child in question is in fact a baby less than 1 year old. However I didnt think that was relevant anyway because I was acting under the impression - which I thought was fact, that a minor can't sign legal documents and also cannot therefore be a member of a LLC.

 

So now, based on your answer, you are saying that they in fact "could" (I would definetely prefer to not have a trust anyway).

 

I, don't want to get myself in hot water either, is it possible for you to be sure that the child could be a non-managing member. Also, then the passing income could just go into a bank account set up for the child from the LLC.

Business Lawyer: Richard - Bizlaw, Attorney replied 7 years ago

Minors can have property. They can receive it by gift, inheritance or having their legal guardian, their parents, act on their behalf to purchase the interest. Holding the membership is no different from owning stock. The child would not be the one exercising things like voting rights, the guardian would. If you have a managing member, then the child's membership is passive and he just votes on things a shareholder would vote on and the vote is made by the minor's guardian on the minor's behalf.

 

This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

Richard - Bizlaw
Category: Business Law
Satisfied Customers: 10,705
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