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How to Put LLC in Trust: Details You Must Know

Max Smith

Reading Time: 7 minutes

Do you have an LLC, and are you looking for a way to protect your LLC assets? Then, putting your LLC in a trust is a perfect solution. But do you know how to put LLC in trust

A trust is beneficial for your LLC, yourself, and also for your heir. It helps primarily to protect your real estate properties. But there are some steps and laws to maintain while you put your LLC in trust. 

So, let’s dive into the details!

It’s 100% legal for a trust to be a member of and own an LLC. The ownership is settled through a trust agreement. But go through your operating agreement and state rules for confirmation.

Undoubtedly, it is possible for a trust to own an LLC, but should you really put your LLC in a trust? The answer is given in the next section.

Should I Put My LLC in a Trust?

Of course, you should put your LLC in trust for its exceptional advantages. Here are the reasons:

  • Secures your funds and portfolios from creditor claims and avoids tax implications. 
  • Safeguard your LLC’s ownership interests.
  • It avoids lengthy and costly legal proceedings like probate when transferring your assets to your chosen beneficiary. 
  • Reduces business costs by eliminating estate taxes in some states.
  • A trust allows you to tailor your asset management system yourself.
  • LLCs become more manageable in investment operations when the trustees are not accountable for the business operation costs.
  • An irrevocable trust owning an LLC eases banking transactions for foreign property ownership.

You may have made the decision to transfer your LLC to a trust, but what are the steps and procedures? The following section will guide you through that process step-by-step.

How to Put LLC in Trust?

There are some general steps that you can follow before going through the legal process of transferring LLC membership interests into a trust.

Steps to Follow Before Putting an LLC into a Trust

Before you put an LLC into trust, follow these steps:

  • Trust Type Choice

Select the one depending on your objectives between two choices: a revocable and irrevocable trust. 

  • Trustee Selection

The trustee you select will be in charge of looking after the trust’s assets. So you must choose someone competent and dependable.

  • Creating a Trust Agreement

A trust agreement is a legal document. It records the terms and conditions of a trust and identifies all parties. It also provides guidelines for the trust’s assets. 

The Process of Putting an LLC into a Trust

Start the process with these actions:

  • Review the Operating Agreement

Always thoroughly review your LLC’s operating agreement because it might not allow membership interests to transfer into a trust. But if the agreement allows the transfer, check for any specific procedures. 

  • Amend the Operating Agreement

You should amend the trust agreement if you have a trust. It is to include provisions for holding LLC membership interests. 

Also, draft and file an Amendment to the Articles of Organization with the Secretary of State. These steps are necessary to recognize the trust as an LLC member officially. 

You will also need an Amendment to the Articles to update the trust as a member of the LLC. It is if the LLC is member-managed. 

But if it is manager-managed, the amendment will be with the respective state records. The trust must own 20% or more of the LLC for this. 

  • Transfer Membership Interests

To transfer membership interests, create a legal document. The document should contain:

  • The LLC identification
  • The trust identification
  • Current owner(s) of membership interests
  • Percentage or number of transferred membership interests &
  • Approval from an LLC member(s) or manager(s)

Manage all the documents for a smooth interest transfer process.

  • Tax Considerations

While putting an LLC in trust, there might be tax consequences to consider. These depend on the jurisdiction and specific affairs. 

There can be potential transfer taxes. Plus, you might find changes in tax filing procedures. 

  • Update the Records

Collect the LLC members’ resolution signatures. It will help to avoid any future conflicts or possible litigation. Then, update the LLC records to declare the ownership change officially.

Nevertheless, it is natural to question whether transferring the LLC to a trust will be beneficial or not. Find it in the next section!

Benefits of Trust Owning LLCs

Transferring your LLC business assets to a trust will be one of the most advantageous decisions you make for the people important to you. The benefits are: 

  • Asset Protection

LLC creditors generally cannot reach trust-held assets. Also, since the trust owns the LLC assets, there is a limitation to the beneficiaries’ access to the LLC assets. 

  • Probate Avoidance

Probate is a lengthy public court process. It resolves the matter of distributing assets when someone passes away. Settling probate usually takes months, even years.   

When you transfer your LLC to a trust, it will not be subject to probate. Avoiding probate will save money and time. Also, your beneficiaries will appreciate the smooth transition.

  • Safeguarding Privacy

As trusts bypass probate, your LLC business can maintain anonymity. So, the documents will remain private.

  • Tax Flexibility

Depending on the trust type you choose, its structure, and the circumstances, you can enjoy: 

  • Income tax deferral
  • Reduced estate taxes
  • Generation-Skipping Transfer (GST) tax planning

 So tax flexibility is also a great reason behind having a trust. 

  • Real-state Planning

You can have a controlled distribution of your assets and set conditions, such as reaching a certain age or achieving a particular milestone. 

Plus, the trust can run business operations if your beneficiaries need help managing assets, like minors or inexperienced. Moreover, if you plan to include provisions for charitable donations, the trust will ensure their execution.

Furthermore, other benefits include arranging succession, flexibility in customization, forced sales prevention, incapacity preparation, and more.

Besides, you must consider a few factors when owning an LLC or trust in real estate. We can help you with that in the next section.

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Trust or LLC for Real Estate

You can choose an LLC or a trust to purchase a real estate property for your business. When a trust is the real estate owner, it’s called a realty trust.

An LLC offers liability protection from lawsuits. Moreover, it becomes easy to get a mortgage.

You can also enjoy anonymity at a significant level. Plus, it is better for group investing as it can hold unlimited members. The benefits may make you consider whether you must put LLC on everything.

However, there are costs like state filing fees, legal fees, and annual renewal fees. Unfortunately, you can also lose liability protection for failing to meet state requirements. For example, not holding yearly meetings or piercing the corporate veil.

Moreover, a real estate LLC goes through probate. 

On the other hand, a trust is ideal for estate planning to avoid probate. So, it provides flexibility in asset distribution.

Apart from this, it offers incredible tax planning strategies. A trust also saves money and time while transferring property.

There are no recurring fees to maintain a real estate trust. Besides, there is an option to create funds for certain parties with both revocable and irrevocable funds.

In some states, forming a trust can be costly. Plus, asset protection in a real estate trust is weaker than LLC liability protection. 

Furthermore, you lose control over the property once it is transferred to an irrevocable trust. Depending on the jurisdiction, trust documents may become public records.

Which One Should You Choose?

Now your question might be, which one should you choose? Well, we have a better question. Why don’t you choose the option with all the pros but fewer cons from both?

You can do this by appointing your trust as the owner or member of your LLC. You and your beneficiaries can have the advantages of both. 

But, if you prefer to choose any one of them, you can do that too. 

Lastly, cost can be crucial when it comes to choosing trust over an LLC. In the next section, let’s highlight the price of transferring property to a trust.

Cost of Transferring Property into a Trust

Your cost calculation will depend on your jurisdiction or state. It also varies as per the complexity of the transfer system for your asset type. In addition, it involves studying legal fees and tax implications.

Find some of the significant costs described below.

Forming a trust: The cost is more than $500.

Submitting documents: It may cost you from $350 to several thousand dollars to prepare and submit essential documents.

A new deed: It can cost between $30 and $50 to record a new deed for the primary residence and between $100 and $225 for a non-primary residence.

Paying a fee: There may be a small fee, like $100, for registering the deed as part of the cost. 

Lastly, you will not pay a local or state transfer tax while transferring real estate to yourself as a trustee.

Conclusion

Before putting your LLC into a trust, it’s better to know how to put LLC in trust. A trust can own an LLC, and you should get trust ownership of your LLC for unique benefits and protections. 

However, get help from an expert service provider to take the formal and legal steps carefully and avoid making mistakes. It will help you avoid extra expenses and secure your real estate from creditors.

Key Points

  • A trust can own an LLC. 
  • A trust can manage the LLC’s affairs on behalf of its beneficiaries. For this, LLC ownership interests are transferred to the trust. 
  • A trust will secure significant assets from creditors and have tax implications. 
  • Before putting an LLC into a trust, there are three steps. Choosing trust type, selecting a trustee, and creating a trust agreement.
  • Putting an LLC into a trust involves a few actions, such as reviewing and amending operating agreements, transferring membership interests, and considering tax implications.
  • The benefits of a trust owning an LLC are numerous. For example, your asset gets double protection, and plans your estate succession & incapacity period. 
  • Your beneficiaries can enjoy probate avoidance and tax flexibility. 
  • You can create an LLC, and then a trust can have a membership interest. In this way, you can have advantages from both.  
  • The cost for transferring your property into a trust will depend on your location and the transfer system for your asset type.
  • A trust ensures your beneficiaries can acquire assets with minor legal hassles.

Frequently Asked Questions

Can a trust be a member of an LLC?

Yes, a trust can become a member of an LLC. It has the right to own a single or multi-member LLC. However, your operating agreement must permit you to make trust as a member of your LLC.

Should I put my house in a trust or LLC?

It’s not compulsory, but you should put your house in trust or LLC to enjoy excellent benefits and protect from liabilities. LLC is a better choice to transfer ownership if your house is a rental property, as it becomes a business asset. On the other hand, a trust can be a perfect choice if you want to secure assets.

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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