An LLC interest held outside of a trust is considered personal property and subject to probate upon the owner’s death.
You can spare your successor trustee that pain, and spare your estate the cost of probate, by transferring your LLC interests to your trust. Doing so can help you achieve your major estate planning objectives and pave the way for a smooth and hassle-free transition of your LLC to your beneficiaries.
Here are common steps for conveying your LLC ownership to your trust:
Be sure that your LLC’s operating agreement allows you to transfer your interest to a trust. If it does not, you will need to amend it, though most operating agreements include exceptions that allow for the transfer of membership interests to revocable trusts for estate planning purposes.
If your operating agreement sets forth any specific requirements for transferring your interest, follow them.
If your LLC ownership predates the creation of your trust, your trust agreement should include an “assignment of interest” from you to the trust.
Conveying your LLC ownership to your trust might require you to amend your Articles of Organization and/or other records on file with the Arizona Corporation Commission or the appropriate governing agency in your state.
If you form the LLC or acquire an LLC interest after you set up your trust, your trust should be named as the owner of your membership interests
(“from the beginning”).
If your interest is in a multi-member LLC, your transfer may need to be approved by the other members, particularly if your operating agreement has any restrictions regarding transfers of ownership. Approval might be in the form of a signed resolution that acknowledges and accepts the transfer of your LLC interest to your trust.
While acknowledging the advantages (described above) to having a trust-owned LLC, it is important that you carefully evaluate the operating agreement and any buy-sell agreements and transfer restrictions to avoid unforeseen consequences. Working with a knowledgeable attorney can help you navigate this process and make informed decisions for your business.