Why You Should Consider Putting Your LLC into a Trust

The limited liability company (LLC) is a popular business structure that offers liability protection and avoidance of double taxation. Trusts are popular asset transfer vehicles that allow you to avoid probate and keep assets out of the hands of creditors. By placing LLC membership interests in a trust, business owners can combine the two types of legal entities and enjoy the best of both worlds. 

Transferring an LLC to a trust requires a bit of paperwork, and in multimember LLCs, may also require the consent of other members. But a well-planned transfer can help reduce risks, keep your business affairs out of government hands, and fit into your broader estate planning goals. 

Benefits of Placing LLC Interests in a Trust

Whether you own a single-member LLC or are a co-owner of a multimember LLC, your LLC ownership interests are considered personal property. Indeed, your business interests are probably one of your most valuable assets. As such, you will want to ensure that you are safeguarding your LLC now and have a plan for what will happen to the business when you are not around or can no longer manage your affairs. 

The following are some of the key benefits of placing LLC interests in a trust: 

Types of Trusts You Can Use for an LLC

The three main types of trusts that are commonly used with LLC asset transfers are revocable trusts, irrevocable trusts, and asset protection trusts. Each type has pros and cons for holding LLC assets. 

Other Considerations for Placing Your LLC in a Trust

Placing your LLC interests in a trust means that the trust—not you as the business owner—is legally an LLC member and a party to the LLC’s operating agreement. Although the law permits a trust to own an LLC, the LLC operating agreement may not. Therefore, you will first need to check whether the operating agreement allows for this arrangement. 

Even if the LLC operating agreement permits trusts to be members, you may still need to obtain consent from the other members (assuming it is a multimember LLC). Obtaining their consent could require a unanimous or majority vote, depending on the rules in the operating agreement. 

If you can proceed with the transfer of your LLC into a trust and have it become an LLC member, you will need to take the following steps: 

The advantages of having a trust-owned LLC should be weighed against the disadvantages—including any unforeseen consequences that can only be uncovered through a careful evaluation of the LLC’s operating agreement, buy-sell agreements, and transfer restrictions. Our attorneys can help you decide if transferring an LLC interest to a trust is the right move for your situation. If you choose to proceed, we can also help you select a trust structure and document the transfer. For assistance with these and other business law matters, please call or contact our office to set up an appointment with our Business and Employment, Attorney Angela Schmit.