Yes, the answer to the question of whether a trust can own an LLC is yes. Many business owners undervalue the importance of estate planning in protecting their company. Nonetheless, after years of hard work, it should go without saying that you should protect what you have created, but it is frequently overlooked.
Setting up a living trust or asset protection trust is one of the most effective ways to protect your business. When the time comes, you will be able to legally transfer your membership interest to someone else.
What Exactly Is a Limited Liability Company (LLC)?
A limited liability company (LLC) is a popular type of business entity that can protect shareholders from liability while also avoiding double taxation. In a limited partnership, there is no double taxation. However, the partners’ liability is not limited. An LLC is a popular choice for real estate because it offers both limited liability and preferential tax treatment.
An LLC can have an unlimited number of members. Members can be both individuals and corporations. When it comes to taxes, a single-member LLC’s profits will be passed through to their personal tax return. Investors can place assets in revocable living trusts during estate planning. It will be distributed to trust beneficiaries without the scrutiny of a probate court.
Consider some of the popular options to determine which setup will work best for your trust.
1. As the Sole Trustee of a Living Trust –
An LLC, on the other hand, provides limited liability protection. It will not help you with your estate planning. A living trust can aid in estate planning. But it will not protect you from liability. An LLC with a single member who is a living trust gets the best of both worlds, with limited liability and probate benefits.
2. Collaboration and trust –
An LLC can operate as a sole proprietorship or partnership to obtain additional tax benefits. You will protect your business assets, such as property, bank accounts, and other personal assets, from lawsuits by forming. When you set up a living trust, the property is protected from probate in the event that one of the partners dies, and the property is transferred according to your instructions.
It is critical to spell out all of the ownership interests that are held in trust when drafting an operating agreement for an LLC.
An operating agreement should include the following provisions-
According to the language, the trustee or successor has full rights as a manager or member of the LLC.
- A list of the managers and members of the LLC.
- In the event of a member’s death or incapacity, a financial or banking institution may refuse to allow you interest in the business base if you do not have a well-defined operating agreement in place.
Living Trusts and Their Legal Importance-
The creation of a living trust aids in determining legal status. A trust can be defined as:
- Revocable – The grantor of a revocable trust has the option to terminate the trust at any time in order to regain ownership. As a result, the trust can be thought of as an extension of the grantor. In terms of debt, it will be counted as one of their assets.
- Irrevocable Trust – The grantor can easily terminate the irrevocable trust. However, the assets are safe from creditors pursuing the grantor’s assets.
Membership in the Trust
The trustees will have legal ownership rights to almost any asset that an individual can own under the laws of each state. A living trust can become a member of the LLC because an LLC’s ownership interest is considered an asset. An LLC is the only type of living trust that can be a member.
The Benefits of Using a Trust to Own Your LLC
1. Avoid Probate:
When you transfer your membership interest in a limited liability company (LLC) to a trust. It is not subject to probate, making the transition after your death much easier. Another benefit of having your LLC owned by a trust is that your loved ones will save time. And money by avoiding probate.
2. Confidentiality:
The probate process is entirely open to the public. During these proceedings, confidential business information and information that could harm your company’s reputation may be made public.
3. Incapacity planning:
It’s also worth noting that putting your LLC in trust can benefit you long after you’ve died. But it also applies if you become incapacitated as a result of an injury or illness. With your wishes for LLC management spelt out in the trust. You can be confident that operations will continue even if you are temporarily unable to run the business for any reason.
Asset protection is a great benefit for business owners and real estate investors. But it can be extremely expensive. It is more advantageous for professional practices such as teachers, doctors, chartered accountants, engineers, and many others.
