Can a Trust Own an LLC? - How to Start my LLC

Can a Trust Own an LLC?

Written by:

Carolyn Young has over 25 years of experience in business in various roles, including bank management, marketing management, and business education.

Reviewed by: Sarah Ruddle

For over 15 years, Sarah Ruddle has been a noteworthy leader in the business and nonprofit world.

Can a Trust Own an LLC?

Can a Trust Own an LLC?

A trust can control personal assets, and an LLC can be an asset, so the simple answer is yes. But the full answer is somewhat more complicated, as a trust can be the sole owner of an LLC. 

Read on to learn more about a trust owning an LLC.

What Is a Trust?

A trust is a legal and fiduciary relationship in which an individual, known as the trustee, grants another individual, known as the trustee, the right to hold and manage the former’s assets to benefit the trust’s beneficiaries. 

This way, the trustor ensures that the assets are protected and distributed as specified. 

What Is an LLC?

An LLC is a popular business structure for startup companies due to its many benefits. An LLC provides personal liability protection, for example, so that your assets are not at risk if your business is sued or cannot pay its debts. 

Also, an LLC is a “pass-through entity” in taxes, meaning that the LLC itself is not taxed. Instead, income passes through the company to the LLC owners or members, who report it on their tax returns on Schedule C. 

LLCs also offer flexibility in management, as there are few requirements regarding organizational structure. 

Benefits of a Trust Owning Your LLC

Having trust in your LLC has several advantages.

  • When the trustor dies, the trustee can continue to manage the LLC on behalf of the beneficiaries according to the trust’s language or the beneficiaries’ instructions.
  • The trust can protect the assets of the LLC from creditors.
  • The trust can keep the LLC assets from going through a lengthy probate process before being distributed to beneficiaries.

The Operating Agreement

Most states do not require an operating agreement, but it’s an essential document, mainly when a trust is the owner of the LCL.  

It defines members’ ownership percentages of members and profit allocations. Those are the most important elements of the operating agreement, but it should also include the following:

  • Each member’s rights and responsibilities
  • Management structure and roles 
  • Voting rights of each member
  • Rules for meetings and voting
  • What happens when a member sells their interest, becomes disabled, or dies

In the case of trust ownership, the operating agreement should detail the management responsibilities of the trust and what happens if the trustor dies. 

It’s critical to have an attorney involved in drafting the operating agreement to make sure it specifies the wishes of the trustor and the responsibilities of the trust.

In Closing

Trusts can indeed own LLCs, but it’s often a situation with considerable complexity that needs to be laid out in full detail in the LLC’s operating agreement. Therefore, you should seriously consider the assistance of an attorney, particularly as the language in the operating agreement must be done right to protect the rights of all those involved.