Tiebreaker needed: different opinions on spouse LLC

[Christina Hsu]

I have asked several different tax providers, and gotten different answers to my questions each time. I need a tiebreaker! Here's the situation: My husband and I created an LLC in Indiana purely for real estate investing. We live in California. Currently we are a 2-member LLC. We want to be able to consider the LLC a disregarded entity.

a) Since CA is a community-property state, can we be a disregarded entity (for tax purposes) with 2 members?

b) Can we state on the EIN/8832 that we are a single-member LLC, but still have 2 spouses be members?

The only thing the tax providers agree on is that filing as a disregarded entity is much easier than as a partnership. I would like to avoid all the partnership issues, but want to ensure that we both are covered in case something happens to one of us.

The LLC was just created, so I have an opportunity to change things if I need to.

[Cody Backus]

Drew M. Posted a great response to your question. My only addition would be to check with an Indiana attorney because what you are talking about specifically relates to how your entity will be treated from a legal standpoint and choice of law comes into play.

You are better from an asset protection standpoint to have multiple member LLCs in most states due to limitations in charging order protection.

If you want to insure that your membership interests in the LLC are transferred upon either of your deaths and would avoid probate you could do one of two things. Have the "Member" of your LLC be your revocable living trust or create a TOD or Transfer on Death agreement to transfer interests upon death. These are amendments to your operating agreement.

This is where tax, asset protection and succession planning intersect and where good professionals can help. I am a Utah attorney work almost exclusively with investors having a these discussions every day. I must say though that I'm not licensed in CA or IN, so this is technically not legal advice and seeking legal counsel in Indiana may prove helpful.