There's a common situation where my estate planning clients crossover with my business clients. When those clients have a trust and also own an LLC, a common consideration we need to discuss is whether it makes sense to move the ownership interest in the LLC into their trust. It also can be a discussion when my clients own an LLC and they are beginning to consider their estate plan and what would suit them best. In those situations as well, it may make sense to create an estate plan with a trust that has their ownership interest in an LLC put into the trust.
This type of planning allows you to take advantage of both a trust and an LLC at the same time and is often the best case scenario for many of my clients.
A word of caution, transferring your LLC interest into a trust may require a bit of paperwork, and if you have other members of your LLC, you may need to get them to agree before you can do the transfer. But once we get past those hurdles, the planning involved can offer a bit of risk protection and fit nicely into your overall planning goals.
If you're considering this approach, there are 4 main benefits that my clients enjoy from moving their LLC interest into a trust.
4 Benefits of Putting Your LLC into a Trust
Your interest in your LLC may be one of the biggest assets that you own. Like your other major assets (your home, your financial accounts, your retirement accounts), your business interest should be included as part of your estate plan. A plan for what happens to your interest if you die is vital, especially if you are the only member of the LLC.
With that in mind, here are 4 key benefits of putting your LLC interest into a trust:
- Asset Protection ~ by using a trust, it can make it more difficult for your LLC's creditors to go after the trust's assets. Your LLC is likely your first line of defense to protect your personal assets, but by adding a trust to the plan, you can have an additional layer of protection.
- Avoiding Your Probate Court ~ assets that are placed in a trust normally will avoid having to go through the probate process when you die. This can be extremely important in the case of a business that needs to continue to operate and can't effectively function while it waits for the probate court to make decisions about the business and its assets and liabilities. Probate court, like many other types of courts, doesn't tend to be a fast process. Probate matters can take months, if not years, to be resolved and you don't want your business trapped in limbo while awaiting court decisions.
- Privacy ~ in addition to the slow movement of the probate court, probate court filings are also public records. So if you've been using your LLC to operate a business and provide you some level of anonymity, you will lose that protection if your business interest has to pass through the probate court and its filings. By using a trust, your business interest can continue to operate the business and a succession plan for what happens to your interest can be built into your trust. It is a quick, efficient process to protect your LLC.
- Planning for your Incapacity ~ in addition to planning for what happens to you after you die, you can also use the trust to plan for what happens to your business interest if you become sick. By using a trust, you can plan to have a trusted person take over and run your business or manage your LLC interest while you are sick and if you recover, your business is waiting for you and ready for you to resume managing the business.
A Quick Word of Caution
If you've already set up your LLC, you need to ensure that your operating agreement allows for you to transfer your interest into a trust. Most of the operating agreements that I draft for my clients include a provision that allows for the transfer, but if you've used an online form, your operating agreement may not allow for the transfer to a trust (another reason to make sure you are working with the right professionals throughout the process).
Also, if you have other members of your LLC, you may need to get their agreement before you are able to transfer your interest in the LLC into a trust, so you should keep that in mind as well.
Do I Need a Business and Estate Planning Attorney?
If you need help putting your LLC interest into a trust, it's important that you talk to an attorney. Let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.
