Can A Trust Own An LLC?

Can A Trust Own An LLC - Can A Living Trust Own An LLC - Can An Irrevocable Trust Own An LLC - How To Put An LLC In Trust - Benefits Of Trust Owning An LLC

Can a trust own an LLC?

In this article you’ll learn about: 

  • if an irrevocable trust can own an LLC
  • if a living trust can own an LLC 
  • if a trust can own an LLC that’s taxed as an S Corp
  • how to put an LLC in a trust
  • the benefits of a trust owning an LLC

Let’s dig in.

Table of Contents

The Hive Law Has Been Featured In

Get A FREE Consultation!

We run out of free consultations every month. Sign up to make sure you get your free consultation. (Free $350 value.)

Can A Trust Own An LLC?

Yes, a trust can own an LLC. People do this for reasons like asset protection, estate planning, tax benefits, and succession planning. 

Here are the types of trusts that can own an LLC:

  • Living Trusts: These help avoid probate. A person can move their LLC shares into this trust. After they die, the trust outlines how these shares are used or given out.
  • Land Trusts: These are for real estate. The trust’s beneficiary might be a person, another trust, or an LLC.
  • Irrevocable Trusts: You can’t change this trust without the beneficiary’s agreement. People use them for protecting assets and tax perks.

Let’s look at what you’ll need to know about trusts owning LLCs:

  • Operating Agreement: If a trust owns an LLC, the LLC’s rules should be clear. It should state how the LLC works, how choices are made, and how profits are shared. This agreement and the trust’s rules should match to prevent problems.
  • State Laws: Each U.S. state has its own LLC and trust rules. Some states have special rules for trusts owning LLCs.
  • Tax Issues: Taxes may vary based on the trust and LLC setup. For example, how the LLC’s income is taxed might depend on the owning trust’s type. Always talk to a tax expert about this.
  • Asset Protection: A trust owning an LLC can protect assets better. With the right setup, it’s hard for a person’s debtors to access trust or LLC assets.
  • Succession Planning: Putting an LLC in a trust means you can plan who takes over when you can’t manage it. This is useful in family businesses or LLCs with many members.

Can An Irrevocable Trust Own An LLC?

Yes, an irrevocable trust can own an LLC. 

Now, let’s understand what an irrevocable trust is. 

This type of trust, once established, can’t usually be changed by the person creating it (the grantor).

They have to have beneficiary consent and sometimes court approval. 

It’s often used for specific goals like asset protection, lowering estate taxes, or supporting charitable giving.

For an LLC, an irrevocable trust can be an owner by holding its membership interests or shares. 

The trust becomes the legal owner, while beneficiaries typically benefit from any LLC income or growth.

Benefits of this setup exist, but there are drawbacks too:

  • Loss of Control: Assets in an irrevocable trust mean you relinquish direct control. Terms set during creation govern asset management and distribution.
  • Limited Flexibility: Unlike revocable trusts, change isn’t easy with irrevocable trusts. Altering terms requires beneficiary consent and often court approval.
  • Complexity and Cost: Creating and maintaining an irrevocable trust is complex and pricey. Legal and admin fees are involved, and taxes add to the intricacy.
  • Conflict Potential: Fixed beneficiaries and terms can lead to disputes over trust management or distribution, possibly involving legal action.
  • Tax Effects: While tax benefits are possible, taxes can result too—like income, gift, or estate taxes – based on the trust’s structure and assets.
  • Irreversible Decisions: Choices made are hard to undo; changing the trust structure due to changes is complicated and could need court approval.

Usually, you can change the LLC’s owner under an irrevocable trust, but it might involve legal and admin steps. 

For changing LLC ownership from an irrevocable trust, consider this:

  • Amending the Trust: Change usually involves amending the trust’s terms. This might need beneficiary consent and potentially court approval, based on trust terms and state laws.
  • Trustee Change: Changing the trustee (who manages trust assets) is simpler than altering trust ownership. New trustees follow trust terms or state laws.
  • LLC Operating Agreement: If the trust solely owns the LLC, adjust the operating agreement to show the new structure. The trustee or representative approval is usually required.
  • State Filings: Following state rules, update business registration documents to change LLC ownership.
  • Tax Implications: Changing ownership can bring tax consequences; consult tax professionals for clarity.

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

Can A Living Trust Own An LLC?

Yes, a living trust can own an LLC. 

Many people transfer LLC interests to living trusts for estate planning

Often, the terms “revocable trust” and “living trust” are used to describe the same trust type. 

A revocable trust is set up during your lifetime. 

As the trust’s creator, you can change or cancel it anytime if you’re mentally sound. 

This trust is popular for estate planning, asset management, and avoiding probate. 

The trust can own an LLC by holding its membership interests.

Here’s how the process generally works:

  • Create the Revocable Trust: Start by establishing a revocable trust. You’ll be the grantor, and you can also be the initial trustee and beneficiary.
  • Transfer Ownership: Transfer the ownership of the LLC to the revocable trust. This involves changing the legal ownership of the LLC’s membership interests or shares from your name to the name of the trust. This is often done through legal documents, which vary based on your jurisdiction.
  • Update Operating Agreement: If the LLC has an operating agreement, you might need to update it to reflect the change in ownership. The trust is now the owner of the LLC, and its terms should be aligned with the operating agreement.
  • Maintain Control: As the trustee of the revocable trust, you continue to manage the LLC and its assets as you did before. Since the trust is revocable, you can make changes to the trust’s terms, including its ownership, if needed.
  • Estate Planning and Probate: One of the main benefits of using a revocable trust to own an LLC is that, upon your passing, the trust’s terms can dictate how the LLC’s ownership is transferred to beneficiaries without going through probate court. This can make the process smoother and more private.
  • Tax Considerations: While transferring ownership of an LLC to a revocable trust generally doesn’t trigger immediate tax consequences, it’s essential to consult with financial and legal professionals to understand any potential tax implications based on your specific situation.

Read More: How Much Does A Living Trust Cost?

Can A Trust Own An LLC Taxed As An S Corp?

Yes, a trust can own an LLC that is taxed as an S Corporation (S Corp). 

However, there are some considerations and requirements to keep in mind:

  • S Corporation Eligibility Requirements: The company qualifies for S Corporation tax treatment by ensuring it has under 100 shareholders who are U.S. citizens or residents, possesses only one class of stock, and meets IRS requirements.
  • Trusts as S Corporation Shareholders: Trusts, such as revocable living trusts or irrevocable trusts, can be shareholders in an S Corporation. Not all trust types qualify; specific rules determine eligibility.
  • Qualified Subchapter S Trust (QSST): If a trust is eligible as an S Corporation shareholder, it should meet the criteria for a Qualified Subchapter S Trust (QSST). This often involves beneficiaries with vested interests in trust income and principal.
  • Estate and Gift Tax Implications: Using a trust as an S Corporation shareholder can lead to estate and gift tax considerations. Implications depend on the trust type and beneficiaries.
  • Professional Consultation Advised: Due to complexities of trust and tax laws, alongside S Corporation regulations, seek advice from legal and tax experts. Specialists in business taxation and trust law can guide trust eligibility and legal and tax requirements.
  • Update Legal Documents: If an eligible trust becomes an S Corporation shareholder, update the necessary legal documents. This includes the LLC’s operating agreement, reflecting the trust’s ownership.
  • Compliance Requirements: S Corporation ownership requires compliance with tax and reporting obligations. The trust must report its share of the S Corporation’s income, losses, and financial activities on tax returns.
  • Role of Trustees: Trustees of the trust manage S Corporation ownership duties and ensure adherence to tax regulations.

Next, let’s talk about how to transfer ownership of an LLC to a trust.

Read More: Do I Need A Trust To Avoid Probate

How To Put An LLC In Trust

Transferring ownership of an LLC to a trust involves several steps to ensure the process is legally valid and properly executed. 

Here’s how to put an LLC into a trust:

  • Review Legal Documents: Start by reviewing the legal documents related to your LLC, including the operating agreement and any relevant state laws. Ensure that there are no restrictions on transferring ownership to a trust.
  • Select a Trust Type: Determine the type of trust you want to use. Common choices are revocable living trusts (which you can modify) or irrevocable trusts (which are more permanent).
  • Create or Identify the Trust: If you don’t have an existing trust, work with a legal professional to create one that meets your needs and objectives. If you already have a trust, you’ll use this trust to hold the LLC.
  • Draft an Assignment Document: Create an assignment document that transfers ownership of the LLC’s membership interests or shares from your name to the trust. This document should be legally prepared and properly executed.
  • Update Operating Agreement: If your LLC has an operating agreement, update it to reflect the change in ownership. The trust is now the owner of the LLC, and this should be accurately documented.
  • Filing with State: Some jurisdictions require you to file documents with the state’s business registration agency to officially record the change in ownership. This ensures that the trust’s ownership is recognized.
  • Notify Relevant Parties: Inform the LLC’s bank, financial institutions, and any relevant parties about the change in ownership. They might require documentation to update their records.
  • Transfer Assets: Depending on your state’s laws and the assets held by the LLC, you might need to transfer ownership of specific assets to the trust. Consult legal professionals to understand the process.
  • Update Internal Records: Make sure that the LLC’s internal records, such as its membership ledger, accurately reflect the new ownership by the trust.

Read More: How Much Do Trusts Cost?

Benefits Of Trust Owning An LLC

There are several benefits to having a trust own an LLC. 

This arrangement offers advantages in terms of asset protection, estate planning, and management flexibility. 

Here are the key benefits:

  • Asset Protection: An LLC inside a trust offers asset protection, keeping trust assets separate from beneficiaries’ personal ones and guarding against liabilities.
  • Estate Planning: Using a trust for an LLC simplifies estate planning, allowing assets to avoid probate for quicker and less costly distribution upon the grantor’s death.
  • Privacy: Trust details and assets are typically private, offering financial confidentiality compared to public probate records.
  • Continuity of Management: Trusts ensure consistent LLC management, with successor trustees taking over if the grantor becomes incapacitated or dies.
  • Distribution Flexibility: Trusts offer varied asset distribution options, beneficial for managing assets across generations.
  • Tax Planning: Trusts can present opportunities for strategic tax planning, potentially lowering various liabilities.
  • Smooth Business Transition: Trusts facilitate smoother transitions of family-owned LLCs to the next generation.
  • Reduced Probate Costs and Delays: Assets in trusts avoid probate, reducing associated costs and distribution delays.
  • Customization: Trust structures can be tailored to specific intentions and beneficiary needs.
  • Multigenerational Planning: Trusts enable planning across generations, allowing for controlled asset provisions for descendants.
  • Seamless Succession: Trusts support smooth asset transitions across generations, minimizing potential disputes.

Read More: Tax Implications Of Transferring Property Into A Trust

How To Get An EIN For An LLC Owned By Trust

To obtain an Employer Identification Number (EIN) for an LLC owned by a trust, you will need to apply with the Internal Revenue Service (IRS). 

Here’s how you can do it:

Gather Information:

  • Have the legal name of the trust and its mailing address.
  • Be prepared to provide the Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) of the responsible party for the trust. This could be the grantor or trustee.
  • Know the reason for applying for the EIN, which in this case would be for starting a new business (the LLC).

Choose Application Method:

  • You can apply for an EIN using one of the following methods: 
  • Online Application: Visit the IRS website and follow the instructions to complete the online application.
  • Fax Application: Complete Form SS-4 (Application for Employer Identification Number), which can be downloaded from the IRS website. Once completed, fax it to the appropriate fax number listed on the form’s instructions.
  • Mail Application: If you prefer to submit a paper application, complete Form SS-4 and mail it to the address provided in the form’s instructions.

Complete the Application:

  • Regardless of the application method, you’ll need to provide accurate and complete information about the trust, including its legal name, address, and responsible party’s information.

Receive EIN:

  • Once the IRS processes your application, you’ll receive an EIN. This number is used for tax reporting purposes and to identify the LLC for federal tax requirements.

Update LLC’s Records:

  • Make sure to update the LLC’s records with the new EIN. This includes updating financial and tax-related documents that require the EIN.

Read More: What Assets Cannot Be Placed In A Trust?

FAQs Related To Can A Trust Own An LLC

Here are other questions our clients ask us about a trust owning an LLC. 

Can An LLC Be A Beneficiary Of A Trust?

Yes, an LLC can be named as a beneficiary of a trust. 

This arrangement can have various purposes and benefits, depending on your goals and intentions. 

Naming an LLC as a beneficiary of a trust is often done for specific purposes, such as asset protection, business succession planning, or estate planning

It allows you to direct how the assets held within the trust will be managed and distributed by the LLC.

Additionally, if the LLC represents a business, naming it as a beneficiary can be part of a business succession plan

It ensures that the business’s assets and operations are managed according to your wishes after your passing.

Finally, naming an LLC as a beneficiary of a trust can facilitate estate planning by allowing you to control how the assets are distributed among beneficiaries

This can help avoid disputes and ensure a smooth transition of assets.

Read More: Who Prepares A K1 For A Trust?

Can An LLC Be A Trustee?

Yes, an LLC can be a trustee. 

A trustee is an individual or entity responsible for managing and overseeing the assets within a trust. 

An LLC can be designated as a trustee, provided the trust’s terms and the state’s laws allow it. 

When an LLC acts as a trustee, its actions must align with the trust’s stipulations and the legal obligations that come with the trustee’s role. 

This means the LLC would:

  • manage the trust’s assets
  • make decisions on behalf of the trust
  • act in the best interest of the trust’s beneficiaries

Can A Trust Be A Member Of An LLC?

Yes, a trust can be a member of an LLC. 

In an LLC, ownership is represented by membership interests. 

A trust can hold membership interests in an LLC, just like an individual or another entity.

However, the trust document should specify how the membership interests in the LLC will be managed, distributed, and controlled by the trustee. 

The trust’s terms will dictate how the trustee exercises their rights as a member.

Both revocable living trusts and irrevocable trusts can be members of an LLC. 

But as a reminder, the type of trust and its specific terms will determine factors like control, flexibility, and tax implications.

Additionally, the LLC’s operating agreement should be updated to reflect the trust’s membership in the LLC. 

It might outline the trust’s rights, voting power, and management involvement, as well as any restrictions.

Get Your LLC Put Into A Trust

If you want to put an LLC into a trust, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets and businesses
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

Get A FREE Consultation!

We run out of free consultations every month. Sign up to make sure you get your free consultation. (Free $350 value.)

Share This Post With Someone Who Needs To See It