FAQ: Trust-Owned LLC

When protecting personal assets, you can save costs and avoid the probate process by putting your funds into a trust or an LLC. You can also combine the benefits of both. Here’s how:

What is a trust?

A trust is a legally recognized relationship in which the assets of one party are held under state law on behalf of another party. Trusts are often used in estate planning in lieu of a will because putting assets into a trust can bypass the often costly and time-consuming probate process (the legal procedure for dividing up one’s assets upon death).

The most common type of trust is a living trust, which is created during the lifetime of the person who sets up the trust (known as the grantor). Living trusts usually fall into one of two categories:

• “revocable” – meaning the terms of the trust can be changed by the grantor.
• “irrevocable” – meaning the grantor no longer has control of their assets once the assets are placed into the trust.

Learn more on Northwest’s How to Set Up a Trust page.

Can a trust own an LLC?

Yes. The terms around LLC ownership are quite broad, allowing for individuals, other companies, or even living trusts to serve as LLC members (or owners). A trust may hold an ownership percentage in an LLC, or serve as its sole member.

Why would a trust own an LLC?

While it doesn’t necessarily make sense for a trust to own a business, LLCs are often used as holding companies. In other words, people can form and fund an LLC that doesn’t actually go into business (i.e. buy or sell products)—instead, the LLC structure is used to hold assets.

The benefit of forming a trust-owned LLC is that it combines the limited liability protections of the LLC structure with the estate-planning benefits of a trust (i.e. avoiding probate). This may be helpful when it comes to protecting certain assets within a trust. Real estate, for example, can be a potentially risky asset. But, putting real estate investments into an LLC that is then owned by a trust effectively protects the other assets within that trust from the potential liability of those real estate investments.

How do I transfer ownership of an LLC to a trust?

To change the ownership of an existing LLC in any way you’ll need to change the terms of your LLC operating agreement and amend your articles of organization. If you’re creating a new LLC with a trust as its sole member, you would simply include the name of the trust when completing your LLC formation documents.

If you’re considering a trust-owned LLC, it’s probably a good idea to get in touch with a lawyer to make sure you have all your ducks in a row.