Living trusts and limited liability companies (LLCs) may not seem to share much in common, and therefore the notion of a living trust possessing membership in an LLC may not appear workable. However, as your Bryan business attorney will tell you, a living trust may in certain cases be a member of an LLC, and sometimes the sole member.
Limited Liability Companies and Living Trusts
An LLC is a fairly recent development in business design. If you establish your company as an LLC you are able to take advantage of the same limited liability tax status of a corporation without taking on the burden of double taxation. LLCs are quite flexible in the way they are managed as well.
A living trust is established by a grantor, who names and entrusts a trustee with assets that are placed in the living trust and used by the named beneficiary while the grantor is alive. Living trusts can be either revocable or irrevocable. The distinction is important, for a revocable trust can be terminated at any time and ownership of the property placed in trust regained. Revocable trusts, however, come with certain disadvantages. Like a sole proprietorship, a revocable trust’s assets can be seized to satisfy debts and taxes that are owed.
An irrevocable living trust cannot be terminated except in unusual circumstances. The advantage of an irrevocable trust is that its assets are protected against creditors, just as an LLC’s assets are.
Membership of a Living Trust in an LLC
A trust can possess ownership rights over nearly any asset. Given that ownership in an LLC is an asset, a living trust can definitely be a member. Indeed, you can establish an LLC with the living trust as the sole member. When you combine an LLC with a living trust, your trustee is empowered to provide for beneficiaries after the death of the grantor. At such time each beneficiary possesses a de facto share of the limited liability company.
Both revocable and irrevocable living trusts can become members of LLCs. However, if the trust is irrevocable, when the grantor dies the LLC and other assets in the trust will not be included in the decedent’s estate for tax purposes. Moreover, creditors cannot go after the assets in the trust.
If You Are Interested in Combining a Living Trust with an LLC
A Bryan business attorney may be able to help you through some of the more complex issues related to combining an LLC and a living trust. Call Peterson Law Group today to arrange a consultation at 979-703-7014 or 936-337-4681.