You formed the LLC. You created the living trust. You may think you’ve finished your estate plan.

But did you ever transfer your LLC interest into the trust?

I see real estate investors make this mistake far too often. They spend the time and money to create LLCs and a living trust, but they leave their LLC membership interests in their individual names.

The problem often doesn’t surface until someone passes away. That’s when the family discovers the trust doesn’t own an LLC holding rental property, investments, or other valuable assets. As a result, the family may have to take that ownership interest through probate.

The good news? You may be able to fix this with a relatively simple document.

If you’re wondering how to put your LLC into a living trust, I’ll show you how to transfer your LLC interest and make sure your trust actually owns it. 

Key Takeaways

• LLC ownership is the asset that matters. Your LLC can continue to own the real estate, brokerage account, or other assets while your living trust holds your membership interest.
• If you’re asking, does an LLC in a trust avoid probate? The key is whether you properly transferred the membership interest to the trust. If you still own it individually when you pass away, your family may need to go through probate to complete an LLC interest transfer.
• A trust-owned LLC doesn’t necessarily require a new operating agreement. The assignment documents the transfer of your LLC interest to the trust, while the agreement continues to govern the LLC.
• The transfer can preserve continuity of control. Holding the interest in your trust can allow your successor trustee to exercise the trust’s ownership rights without first obtaining authority through probate.
• A revocable living trust generally preserves your existing federal income tax treatment during your lifetime. Moving the membership interest into the trust generally doesn’t create a separate federal taxpayer solely because of the transfer.

Looking for more estate planning tips? Watch my video on the most common estate planning mistakes investors make, including failing to fund a living trust, and subscribe to my channel for more strategies to protect your assets and investments.

Why Should You Put Your LLC In A Living Trust?

Putting your LLC in a living trust can keep your ownership interest out of probate and allow your successor trustee to manage or transfer that business interest according to your estate plan.

To accomplish that, you need to fund your trust with the LLC membership interest. The LLC continues to own its business assets, such as rental property, brokerage accounts, or other investments. Your trust holds your ownership interest in the LLC.

What Happens If Your LLC Isn’t In Your Living Trust?

Creating a living trust doesn’t automatically change your business structure or transfer your LLC interest. 

If you formed the LLC in your individual name and never completed the transfer, you still own that business interest personally—and it may have to pass through probate.

How Do You Put An LLC Into A Living Trust?

You generally put an LLC into a living trust by transferring your membership interest to the trust through an assignment agreement, subject to the operating agreement and applicable state law.

You’re not transferring the assets inside the LLC. You’re transferring your ownership interest in the company.

For example:

Before:
You → ABC Rentals LLC → Rental Property

After:
You → Living Trust → ABC Rentals LLC → Rental Property

ABC Rentals LLC still owns the rental property. Your living trust now holds your membership interest in the LLC.

What Is An Assignment Agreement?

An assignment agreement documents the transfer of your LLC membership interest from you individually to your living trust.

If you’re a business owner or investor with several LLCs, you may be able to identify multiple ownership interests in one properly drafted assignment.

For example, you might have a Wyoming holding LLC, several rental property LLCs, and an LLC holding a brokerage account. The important thing is to identify which interests should go into your trust and document those transfers.

Don’t assume that creating your trust has accomplished this.

Do You Need To Change Your LLC Operating Agreement?

Your assignment agreement can document the ownership transfer without requiring you to rewrite the entire agreement. You should, however, review the agreement for transfer restrictions, consent requirements, or other provisions that could affect the transfer.

This becomes especially important with multi-member LLCs. Your agreement or buy-sell agreement may restrict transfers, require approval from other members, or establish specific procedures for transferring your ownership interest to a trust.

There’s also a practical reason I don’t automatically recommend changing the agreement to list your trust as the member: financing.

If you give a lender an operating agreement that lists your living trust, the underwriter may ask to review the trust and request additional documentation.

Does Transferring Your LLC To A Living Trust Affect Your Taxes?

For a typical revocable living trust treated as a grantor trust, transferring your LLC interest generally doesn’t change your federal income tax treatment.

The IRS generally disregards a revocable grantor trust as a separate taxpayer during the grantor’s lifetime.

If your LLC income currently flows through to your individual tax return, moving the membership interest into your revocable living trust generally doesn’t require a separate federal income tax return for the trust solely because of that transfer.

How Can You Check Whether Your LLC Is In Your Trust?

Already have a living trust and LLCs? Pull out your documents and check:

1. Who currently owns each LLC membership interest?
2. Do you have an assignment transferring that interest to your trust?
3. Does your agreement restrict the transfer?
4. Have you formed any new LLCs since creating or funding your trust?
5. Can your successor trustee identify your LLCs and the interests your trust owns?

Don’t assume your attorney, registered agent, or entity formation company automatically transferred an LLC simply because you created a trust.

How Do You Update Your Trust If Your Assets Change?

Your estate plan needs to account for changes in your portfolio.

Your long-term estate plan needs to keep pace with your portfolio. You might create your trust today and then buy three rentals and form two new LLCs over the next five years.

That’s why investors should periodically review their LLC ownership and estate planning documents.

FAQs

Can An LLC Own A Trust?

For this type of estate-planning structure, it’s generally the other way around: a living trust holds the LLC membership interest while the LLC continues to hold its business or investment assets.

Can A Living Trust Own An LLC?

Yes. A revocable living trust can generally hold an LLC membership interest, subject to the LLC’s governing documents and state law. This is commonly referred to as a trust-owned LLC.

Does A Trust-Owned LLC Avoid Probate?

Properly holding an LLC membership interest in a living trust generally allows that interest to pass under the trust without probate. The result depends on your ownership structure, documentation, and applicable law.

Can I Put Multiple LLCs In One Living Trust?

Potentially, yes. A living trust can hold interests in multiple LLCs, assuming the governing documents and applicable law permit the transfers.

If My Living Trust Owns An LLC, Can I Also Put Personal Assets In The Trust?

Yes. Your living trust can hold your LLC ownership interest, as well as other personal assets, such as your bank account, in your individual estate plan. 

Are There Other Types Of Trusts That Can Own An LLC?

Yes. Different types of trusts can hold LLC interests, but each serves distinct estate planning, tax, and asset protection purposes.

Make Sure Your Trust Owns What You Think It Owns

Your asset protection and estate planning structures may serve different purposes, but you still need to make sure your estate plan properly addresses your LLC ownership.

If your trust should hold an LLC interest that you still own individually, determine whether you need an assignment agreement and transfer the interest now before your family has to address it later.

Your estate plan can only control what you’ve properly put into it.

Not sure whether your LLC interests and other assets are properly included in your estate plan? Schedule a complimentary Strategy Session with Anderson Advisors. We’ll review your current structure, identify potential gaps, and help you determine what steps you need to take to put your plan in place.