The limited liability company (LLC) is a popular business structure that offers liability protection and tax savings. Trusts are popular asset transfer vehicles that allow you to avoid probate and keep assets out of the hands of creditors if properly designed. 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 creditor hands, and fit into your broader estate planning goals.
Benefits of Placing LLC Interests in a Trust
● Probate avoidance. Probate is the legal process of settling an estate when somebody passes away. Overseen by the court, probate ensures that your debts are paid off and your assets—including business interests—are allocated to the beneficiaries you specify in your will. Assets that are placed in a trust generally avoid probate, which can take months to complete. During the probate process, there may be nobody to legally managing your business interests, which can result in operational problems.
● Privacy. Not only can probate be lengthy and cause your business to languish—a probated estate is a matter of public record. That means anyone who knows where to look (e.g., creditors, disinherited heirs, and scammers) can learn details about your estate. Trusts, on the other hand, bypass probate, and the assets they contain pass to your beneficiaries more quickly, efficiently, and privately.
● Incapacity planning. You may have a plan for what will happen to your business when you die, such as having a trusted family member take over, or an agreement that allows other LLC members to buy out your ownership stake upon your death. But what happens if an accident or illness renders you incapable of fulfilling your business duties? If your LLC interests are held in a trust, the trust can be structured so that your incapacity immediately triggers the authorization of another person (i.e., the trustee) to take over on your behalf.
● Asset protection. Depending on the type of trust in which you place your LLC membership interests, the trust can make it more difficult for creditors to go after the trust assets.
We can help!
Our attorneys can help you decide if transferring an LLC interest to a trust is the right move for your situation. For assistance with these and other business law or estate planning matters, contact our office today!
Legal Disclaimer – The information provided is designed for general information only and is not intended to be legal advice, nor does it create an attorney client relationship. Consult an attorney before making any legal decisions based on your individual circumstances.