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1. Feature: Annual Gifting of Partial LLC Ownership Interests (4 min)

2. From the Archive:

   • A Meeting Agenda Template for Your Business

   • The Smartest Hire You’ll Ever Make

3. Dear TCoL: Changing Your Registered Agent in Florida

-TCoL

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If you own an LLC and want family members to step into ownership over time, annual gifting of equity can be a powerful tool. Done well, it moves value out of your estate, builds the next generation’s stake, and usually does not trigger current gift tax.

This article assumes your business is an LLC taxed as a partnership for federal tax purposes, which is a common structure for closely held companies. If your LLC is taxed as an S corporation or C corporation, or if the recipient is an employee or service provider rather than a family member, the analysis changes and the risks go up (we will cover those scenarios in a separate article).

How the annual exclusion actually works

Under federal gift tax rules, you can give up to $19,000 per recipient in 2025 and 2026 without using any of your lifetime exemption, as long as the gift qualifies for the annual exclusion. The limit is per person, per year. Three children and two grandchildren mean five separate annual exclusion gifts.

The annual exclusion only applies to a “present interest” in property. In plain terms, the person receiving the gift must have the right to use or benefit from what you gave them now, not just at some point in the future. With LLC interests, that usually means the recipient actually becomes an owner under the operating agreement at the time of the transfer, with a current right to share in profits and other economic benefits.

You can run into trouble when the paperwork or the operating agreement says something different. If the agreement effectively prevents the recipient from receiving current economic benefit — for example, by giving the manager broad discretion over distributions with no realistic way for the recipient to access income — the interest can be treated as a future interest and fail to qualify for the annual exclusion.

When the gift is larger than $19,000

Once you gift more than $19,000 of value to one person in a year, the extra amounts are taxable gifts that must be reported on IRS Form 709. That does not mean you will write a check to the IRS when you file. Gift tax is layered. The annual exclusion shields the first $19,000 per person. Anything above that simply reduces your total lifetime exemption.

For 2026, that lifetime exemption is $15,000,000 per person. A married couple, with proper planning, can effectively double that through coordinated planning and gift-splitting. Most owners making modest annual gifts to children and grandchildren never end up paying out-of-pocket gift tax because their cumulative taxable gifts stay below that basic exclusion amount.

A simple example makes the mechanics understandable. If you gift $119,000 of LLC value to a child in 2026, $19,000 falls under the annual exclusion. The remaining $100,000 is a taxable gift. It must be reported on Form 709 and it reduces your lifetime exemption by $100,000. No gift tax is due unless, over time, your cumulative taxable gifts exceed $15M.

For owners planning to transfer a substantial business, tracking these numbers over several years is not just recordkeeping. It is the backbone of a long-range succession and estate plan.

Why valuation sits at the center

Gift tax is based on fair market value of the asset being gifted. For a privately held LLC, the value is not obvious. Your LLC ownership interest is not publicly traded with a ticker symbol. Often, no recent arm’s-length sale exists. Yet the IRS still expects you to attach a number and, when required, explain how you arrived at it.

That is where a defensible (and repeatable) valuation becomes important. For an operating business, that typically means determining a valuation method and, typically, engaging a valuation professional who understands discounts for lack of control and lack of marketability and can apply them in a way that holds up if the IRS ever looks at the file. The more equity you plan to move over several years, the more important a consistent valuation method becomes.

For business owners, the practical lesson is simple: do not estimate or guess. Build your gifting program around a repeatable valuation approach and the right disclosures from the start, and have your CPA or a tax attorney involved in each step of that process.

For detailed information about how to begin the appraisal process of your business, read our prior article, When You Need an Appraisal for Your Business.

Two common ways to partially gift an LLC ownership

Family LLC ownership is usually moved in one of two ways. The distinction is easy to miss on paper but matters for the tax analysis.

The first is a direct transfer. You, as an existing member, transfer a part of your interest to a child, a grandchild, or a trust. For gift tax purposes, this is the cleanest structure. You are the donor, the recipient is the donee, and the focus is on the value transferred and whether the annual exclusion and your lifetime exemption cover it.

The second is an issuance by the LLC. In that case, the company itself issues new units or membership interests directly to the family member. On the surface, you did not transfer anything; the LLC did. Economically, however, everyone else’s slice of the pie gets smaller when the new owner arrives.

This does not make the issuance approach wrong, but it does mean you need to look past the signatures and see where value moved. If the LLC issues equity to your child at a bargain price and your own percentage interest is diluted, the IRS can treat you as having made an indirect gift equal to the value shifted from your interest to theirs, often in proportion to your pre-transaction ownership.

Why employees and “gifts” rarely mix

Business owners sometimes talk about “gifting” equity to a key employee to reward loyalty. The tax law does not see it that way. Transfers from an employer to an employee are generally treated as compensation, not gifts. On top of that, special rules apply to property transferred in connection with services.

For LLC ownership interests given to an employee, the usual pattern is that the employee recognizes ordinary income when the interest vests or becomes transferable, or earlier if they make a special election. The company may receive a deduction, but the transfer is not handled under the gift tax rules. Trying to treat an employee equity award as if it were a family gift is almost always a mistake under the compensation rules that actually apply.

The key takeaway is straightforward: family equity transfers are usually governed by the gift tax rules; employee equity is usually governed by the compensation rules. You should not promise, announce, or document employee “equity gifts” until your CPA or a tax attorney has walked you through the income-tax and payroll-tax consequences.

The operating agreement and the paperwork still matter

None of this works if the transfer is not valid under your company’s operating documents.. Most operating agreements restrict transfers, require member consent, or spell out how and when new owners are admitted. Ignore those provisions and you may end up with a “gift” that is ineffective under state law or that sparks a dispute among existing members/owners.

At a minimum, each year’s gift should be confirmed by:

• A review of the operating agreement confirming the transfer is permitted and identifying any restrictions or conditions that must be built into the gifted interest.

• A company resolution approving the transfer or issuance and, if needed, admitting the new owner.

• A simple transfer or gifting agreement between you and the recipient, acknowledged and signed separately by the LLC, that reflects any restrictions your advisors say are needed to support the valuation and the intended tax treatment.

• Updated company records showing revised ownership percentages and capital accounts.

It is tempting to treat these as housekeeping but they are not. They are what make the transfer real in the eyes of the IRS, your co-owners, a future buyer, and lenders.

A practical warning

Partially gifting an LLC ownership interest is a powerful estate planning tool, but it is not a casual one. Tax implications, company approvals, timing decisions, and valuation assumptions all matter.

You should avoid starting a gifting program until your CPA or a tax attorney has walked you through the structure, the restrictions that may be required, and how the gifts will be valued and reported over time.

The best time to get the structure right is before you make the first gift, not after the IRS, a co-owner, or a future buyer starts asking hard questions.

Dear TCoL: Changing Your Registered Agent in Florida

Question: I have a Florida LLC. I would like to switch my registered agent when I file my annual report this Spring. How can I do that?

Answer: Changing your LLC’s registered agent is fairly simple and it can be done at the same time you file your Florida annual report this Spring. Here are the steps:

Step 1: File the Annual Report on Sunbiz

1. Go to Sunbiz.org

2. Click “Annual Report” (available during the annual filing window).

3. Search for your LLC by name or document number.

4. Select your LLC and begin the Annual Report filing.

You’ll be taken into the online annual report form, where Sunbiz lets you update your company’s current information.

Step 2: Change the Registered Agent Within the Annual Report

1. Scroll to the Registered Agent / Registered Office section of the annual report.

2. Replace the existing agent information with:

   • The new registered agent’s full legal name, and

   • A Florida physical street address (no P.O. boxes).

3. Confirm the new registered agent has agreed to serve (Sunbiz requires agent consent, even though it’s not uploaded).

4. Continue completing the rest of the annual report.

5. Submit the report and pay the annual report filing fee.

Once submitted, the registered agent change and the annual report are processed together. No separate “Statement of Change” filing is required.

For more information, read our prior article, Changing Registered Agents in Florida & Wyoming.

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