When you set up a trust for asset protection or estate planning purposes, you can put a lot of different things into that trust, including liquid capital, stocks and bonds, property, and more. But can a trust own an LLC and, if so, is it a wise idea to put your limited liability company into your trust instrument?
It depends on your goals, the type of trust you’ve set up, and a variety of other factors. Let’s dive deeper.
What’s an LLC?
An LLC or limited liability company is a type of corporate structure that, as its name suggests, limits personal liability in the event of lawsuits and other legal action. When you set up an LLC, you distance your personal responsibility or liability for the actions and consequences of your company. Don’t be fooled, though – an LLC isn’t effective at defending your assets in the event of a legal action.
LLCs are "bigger" than sole proprietorships and partnerships while keeping some of the flexible components of these business structures. At the same time, they are smaller than full-on corporations.
LLCs are very popular among entrepreneurs and small business owners because they offer business structure flexibility and help you avoid double taxation. Depending on how your LLC is set up, you might be the only owner and operator of the LLC, or you might share ownership with other partners within the company (for example, if you set up an LLC with a few of your fellow entrepreneurs).
What’s a Trust?
A trust is a fiduciary agreement that places ownership of one or more assets in the hands of a third party called the trustee. With a trust, the grantor or settlor dictates who the trustee is and who the beneficiaries are. Beneficiaries are those who receive distributions or access to the trust and its assets.
Trusts are used for a variety of different purposes. For example, many individuals use trusts for estate planning – they might place assets in a trust with instructions that those assets should only be distributed to grandchildren or other descendants at a certain time or when certain conditions are met.
But trusts can also be used for estate and asset protection purposes. An asset protection trust is a specific type of trust that takes ownership of key assets away so that creditors and lawsuit plaintiffs cannot compel you to give those assets up for bills or damages.
Can Your LLC Be Owned by a Trust?
So, if you’re wondering whether your LLC can be owned by a trust, the answer is yes. More specifically, you can transfer your membership or ownership interest to the trust, thereby removing your personal membership from your control.
For example, say that you own 50% of an LLC with your business partner. To protect your personal liability and to ensure your ownership interests/assets cannot be taken by creditors or lawsuit plaintiffs, you transfer those ownership assets (e.g., stocks) to an asset protection trust.
In doing this, you don't lose your ability to operate within the trust, exercise your LLC rights and responsibilities, etc. Instead, you make it so that, hypothetically, a court can’t require you to give up your LLC membership stake for any reason. If your trust is set up properly, there won’t be any legal grounds for them to compel you to do this.
Benefits to Your Trust Owning Your LLC
There are several big benefits to placing an LLC in a trust. These include:
- Probate avoidance or minimization. If you place your membership interest for your limited liability company into a trust that you helped to create, it won’t be subject to the probate process. If you pass away, this will make transitioning ownership of that trust membership interest to a loved one or other beneficiary much smoother
- Higher privacy. Remember, the probate process is public by nature. Therefore, if your LLC membership interest goes through probate, any potentially sensitive business interests could be aired out to the public as well. That can damage your business’s reputation or operations in a number of different ways
- Planning for incapacity. If you are incapacitated because of injury, illness, or some other reason, you can spell out your wishes for the management of your limited liability company in your trust. When you do this, you can rest assured that the trustee will make sure your LLC and its assets are distributed and administered properly
- No matter what you decide to do, it’s essential to consult with a tax professional to fully understand the tax implications for your situation.
- Enhanced asset protection. By placing your LLC within a trust, you create an additional layer of protection for your business assets. This can be particularly beneficial in situations where personal liability might arise
- Increased flexibility in estate planning. Trusts offer a higher degree of control over the distribution of assets compared to traditional wills. You can specify conditions, timelines, and beneficiaries for your LLC’s ownership, allowing for a more tailored succession plan
- Potential tax advantages. Depending on the type of trust and your specific circumstances, there could be potential tax benefits associated with holding your LLC in a trust
No matter what you decide to do, it’s essential to consult with a tax professional to fully understand the tax implications for your situation.
Revocable vs. Irrevocable Trusts for LLC Ownership
While you can put an LLC (or rather, your membership interest in the LLC) into any type of trust you set up, you’ll want to choose between revocable and irrevocable trusts carefully.
A revocable trust is one that you can change or modify after it has been established and while you are still alive. For instance, say that you set up a trust to outline the running of your LLC after you pass away. If it’s revocable, you can change the terms of that trust if you wish to add another beneficiary, you change your mind about something, etc.
It’s the opposite with an irrevocable trust. An irrevocable trust does not allow you to change its terms or conditions except in very limited circumstances, such as by court orders. An irrevocable trust is certainly more protective because a court can’t tell you to change the terms or access rules of the trust for any reason (assuming you set it up properly with the assistance of knowledgeable experts, of course).
At the same time, an irrevocable trust gives you less control over the LLC and its assets. Because of this, it’s doubly important you work with knowledgeable experts in this arena – they’ll be able to ensure that you set up your irrevocable trust properly and that you don’t have any regrets or want to change anything later down the road.
Placing an LLC in an Irrevocable Asset Protection Trust
It might be a wise idea to place your limited liability company’s membership interest into an irrevocable asset protection trust. An asset protection trust is a typically offshore trust vehicle that operates under different jurisdictional rules compared to those of your home jurisdiction.
Say that you run a business in the US. If you put your LLC into an offshore asset protection trust, like one based in Jersey or Cyprus, US courts won’t have nearly as much power or ability to get access to your LLC and its assets. This is doubly true if you choose the right bank, preferably one without any extra or subsidiary branches in the US or in some other jurisdiction.
When you put your LLC into an irrevocable asset protection trust, you protect it from:
- Aggressive creditors that may come after you for loans or other reasons
- Lawsuit plaintiffs, like business partners, disgruntled customers, and so on
- Ex-spouses
- Any other party that might want to take your money or dismantle your LLC through a lawsuit
Seen in this light, putting your LLC into a properly developed, highly resilient trust instrument could be the best way to protect it for a long time to come. Even better, if you set up your asset protection trust properly, your LLC can continue to generate wealth and income for you as the years go on.
That's why we offer specialized trust instruments at Dominion. As trust setup experts, we have all the legal and financial infrastructure necessary to develop, plan, and implement asset protection trusts across a variety of different offshore jurisdictions.
Depending on your goals and what you tell us you need, we can also write up the trust documents so that they focus more on overall security, wealth generation, or both at the same time. Many successful entrepreneurs and other high-net-worth individuals want their LLCs to continue to be profitable even after they are protected.
We offer that functionality without any compromise in terms of security or protection. In addition, your asset protection trust could potentially store much more than just your LLC’s ownership interest. For instance, you can store stocks and bonds, liquid capital, real estate deeds, and any other assets you want to protect from future threats.
We aren't exaggerating when we say that a properly written asset protection trust is the most durable, trustworthy defensive instrument available to you. Working with Dominion will help you protect your LLC in perpetuity.
Contact Dominion Today
To recap, a trust can own an LLC, and it might be a wise idea to put ownership of your LLC in a trust for asset protection purposes. However, note that setting up your trust for long-term defense and wealth generation requires the assistance of experts.
At Dominion, we can help you set up a proper offshore asset protection trust. Once it's set up, you can put your LLC in the trust, your real estate, and a variety of other properties or assets that you don't want to be within reach of creditors or lawsuit plaintiffs.
Putting your LLC in the security of an airtight, Dominion-style asset protection trust could be the best way to preserve its assets and structure for years to come. Get in touch with one of our representatives today to learn more.
