Should I make a trust the owner of my LLC membership interest?

Creating an estate plan is extremely important when you have ownership interests in a limited liability company, or LLC. This type of entity is commonly used in California, including for those who own rental property. As you create your estate plan, it may be possible to combine the use of a newly created revocable trust with the benefits of an LLC to provide for easy transition of your assets when you die.

3 Reasons to Consider Combining a Trust and an LLC When Creating an Estate Plan

Why consider using both an LLC and a trust when creating your estate plan? The following is an overview:

  1. The LLC allows for limited liability protection while also avoiding the double taxation issue that accompanies corporations. As a result, an LLC is often a wise choice for holding title to rental real estate.
  2. A trust does not provide liability protection; however, it does allow for the smooth and efficient transfer of assets upon your death. A revocable trust will help avoid the need for probate administration when you die. As a result, assets can be passed more quickly and with less cost than if they were subject to oversight of the probate court.
  3. When creating an estate plan, you can combine the use of these two valuable tools to address your rental property. This allows you to take advantage of the liability protection and tax benefits of the LLC while maintaining the estate planning benefits of the trust. To do so, the trust should be made the holder of the LLC’s membership interest, either initially or upon your death.

While combining an LLC and a trust is generally a good option for property owners, every situation is unique and should be carefully addressed as part of the estate planning process. Your attorney will discuss the potential drawbacks of creating an estate plan in this manner, such as the annual costs that may be associated with using an LLC and any tax issues that may arise. To learn more, we encourage you to contact us today at (714) 459-5481.