My father in law is going to set up a LLC for a rental property. He plans to make my husband partner with 40% share but we can only contribute about 5% capital. The accountant he uses said this setup should not be an issue. My question is that would this be an issue e.g. gift tax
If you set up the LLC with your husband as a 40% member with only a 5% capital contribution you will definitely have some potential gift tax issues. There is plenty of case law that your account should look into where parents create LLCs with their children and a taxable gift occurs when the property is transfered into the LLC because the child's equity interest in the LLC exceeds his or her capital contirubtion.
One way to help avoid this consequence is to initially have your husband as a 5% member and then his father can begin to gift him units in the LLC on an annual basis. You husband may also contribute services to the LLC but be sure to properly value the services being contributed.