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Can a Trust Own an LLC in California? (Updated)

Max Smith

Reading Time: 5 minutes

Having trust is good, but how could you neglect LLC benefits? Before taking further steps to combine LLC and trust, don’t you think, ” Can a trust own an LLC in California or not?”

A trust safeguards property and simplifies the transfer process to your heir. However, an LLC provides strong liability protection and forms a legal entity. Both are different but they match when we talk about asset protection. 

When a trust owns an LLC, it’s a great way to combine and enjoy both facilities. However, California has rules for trusts that own LLCs. Once you follow the rules, you will enjoy the benefits of owning an LLC. 

Let’s start discussing trusts owning LLCs in California without further ado.

A trust is a legal relationship between two parties regarding a third party. This legal entity holds or manages property for the benefit of the third party and has separate & distinct rights.

Moreover, the 3 parties in a trust are:

  • 1st party is the trustor (the grantor or settlor). They create the trust and provide the assets.
  • 2nd party is the trustee. They are responsible for asset management according to the trustor’s instructions.
  • 3rd party is the beneficiary. The beneficiary can be your heir or family who will enjoy the advantage.

Furthermore, the most common types of trust are:

  1. Revocable Trust: The trustor can alter or revoke the trust in their lifetime.
  2. Irrevocable Trust: Once established, the trustor cannot modify this trust.

Besides, there are other types, too, like testamentary, charitable, asset protection, A/B, QTIP, GRAT, etc.

That was all about trust, in a nutshell. Now, do you want to know what an LLC is in brief? Then read the next section!

What's an LLC?

The word ‘LLC’ stands for ‘Limited Liability Company.’ It is a type of corporate structure allowed by state statute. This legal entity protects its owners from the LLC’s debts and liabilities.

LLC owners are called members, who can be individuals, corporations, foreign entities, or even other LLCs. Moreover, there are no member number limits. However, an LLC can also be a single-member LLC.

Now is the moment to answer our most important question: whether or not a trust can own an LLC in California. Is it allowed by the law, or are there any obstructions? Let’s find out.

Can a Trust Own an LLC in California?

Yes, a trust can own an LLC in California.

A trust can own an LLC’s membership interests. This regulation means the trustee manages the LLC’s assets on behalf of the beneficiary.

This setup is allowed because:

  • Legally, trusts can own various assets, including an LLC ownership interest.
  • There are no obligations under the state law against trusts to be LLC members. In fact, it can also be the only member of a single-member LLC.

So, the scenario will be like this: Your trust will own the LLC, and the LLC will own the property.

When the trust owns the LLC instead of you directly owning it, the trust can be revocable or irrevocable. It depends on your priorities.

However, a revocable trust is suitable for maintaining flexibility and control over the LLC. On the contrary, an irrevocable trust is better suited for asset protection and tax planning.

Now, if you decide to take this action, make sure that:

  • The trust agreement does not explicitly prevent LLC ownership, &
  • The LLC operating agreement does not restrict ownership by trusts.

Again, California allows trusts to own LLCs. But what are the laws and regulations behind that operation? Let’s check those in the following:

California Laws Regarding Trusts Owning LLCs

Here are a few key points and discussions on California laws:

  • Trust Law

Division 9 (Trust Law) of the California Probate Code governs Californian trust laws. This code outlines regulations for the state trust’s creation, administration, and termination.

  • LLC Law

The California Revised Uniform Limited Liability Company Act (RULLCA) governs Californian LLC laws. It is in Title 2.6, Division 3 of the California Corporations Code.

  • Trusted ownership of LLCs

Trusts are allowed by California law to own LLCs. The trustee runs the LLC for the beneficiaries.

  • Taxation

LLCs owned by trusts in California are pass-through entities. This legal system is for federal income tax purposes. The LLC’s income, profits, losses, deductions, and credits pass through to the trust and its beneficiary.

  • Formal Documents

When trusts own LLCs in California, some formal documents must be drafted legally. Like:

  • The trust agreement
  • The LLC’s operating agreement
  • Transfer documents
  • Articles of Organization
  • Tax forms
  • Banking documents
  • Compliance documents
  • Insurance policies 

You might wonder why you would let a trust own your LLC instead of yourself. This step has some benefits, so let’s look at them. 

Benefits of a Trust Owning an LLC

Here are a few benefits of a trust owning an LLC:

  • The membership interest avoids probate, saving time and money.
  • Estate planning is flexible.
  • There are instructions for trustee succession in times of incapacity.
  • There will be an extra layer of protection for the assets from creditors.
  • The documents remain private from the public.
  • It offers potential tax advantages.

Conclusion

As we finally reach the end, your question, ‘Can a trust own an LLC in California?’ is appropriately answered. It indeed can, with all the benefits for your loved ones in difficult times. Undoubtedly, it ensures your property’s safety from liabilities and provides an easy transformation process for your family. 

So, create your LLC in California and abide by all the Californian laws when your trust will own your LLC. Additionally, consult a legal expert on trust and Californian law. 

Key Points

Here are the critical points in the entire discussion:

  • A trust is a legal entity that holds or manages property for the benefit of a third party.
  • The 3 parties in a trust are the trustor, the trustee, and the beneficiary.
  • The most common types of trusts are revocable and irrevocable trusts. But there are other types, too.
  • An LLC is a corporate structure that protects its owners from its debts and liabilities. Its owners are called members.
  • A trust can own an LLC in California.
  • A revocable trust is for flexibility and control. An irrevocable trust is for asset protection and tax planning.
  • Ensure no restrictions exist in the trust agreement and the LLC operating agreement against this action.
  • The California laws regarding trusts owning LLCs are:
    • The California Probate Code’s Division 9 (Trust Law).
    • Division 3 of the California Corporations Code’s Title 2.6 (LLC Law).
  • The other essential laws and regulations are taxation and formal document requirements.
  • Benefits of a Trust Owning an LLC:
    • Avoids probate.
    • Estate planning.
    • Succession planning.
    • Additional protection.
    • Privacy.
    • Tax advantages.

Frequently Asked Questions

Can a trust own an LLC in Florida?

100% yes! A trustee works on behalf of the trust and makes the decision to own an LLC in Florida on behalf of the trust. An LLC is a business quality that you can consider an asset. So, a trust can own any asset, including a business interest, like an LLC.

Can a trust own an LLC in Texas?

Of course! In Texas, it is legal for a trust to own an LLC. However, you may need to take the necessary steps: make documents, pay fees, and abide by the state laws.

Can an LLC be a trustee?

It’s possible! Your LLC can be a trustee. This is a winning option for you to enjoy trust and LLC benefits. A trustee can be a person or a legal entity like an LLC.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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