This limitation can adversely affect estate planning. If you leave your S corporation stock to your heirs in a trust, the trust must distribute the stock within 60 days after the stock is transferred to the trust. In contrast, trusts can own LLCs without any limitations. As more business owners become concerned about estate planning, they may turn to LLCs. The LLC must possess those same characteristics to have the IRS honor its special allocations.
Extreme care is required to ensure that the required characteristics are in place.
If the IRS justifiably refuses to honor those allocations, the LLC's members may face serious tax liabilities. The LLC combines the best features of partnerships and corporations in one package. Two or more business owners can now make special allocations of the gains and losses from their enterprise while avoiding personal liability. They can flexibly compensate each other, and they can leave their LLC interests to their heirs in a trust. Provided that the owners use care in organizing the entity, an LLC may give them an excellent platform from which to launch a successful business.