How to transfer an LLC to a revocable living trust

Question

My wife and I own a rental property, under an LLC with both of us are 2 members. I want to create a living trust to avoid probate and also want my sons to continue the business after we passed. How can I transfer the LLC to the trust? Thanks,

Account Closed · Answer

An inter vivos trust provides many possible benefits: it allows you to maintain control of your property during your lifetime, avoid probate after your death, and plan your estate.  To create an inter vivos trust, you as the grantor place as many assets as possible into a trust to fund it.  You must choose a trustee to manage your property for your benefit during your lifetime.  If you name yourself as the trustee, you also choose a successor trustee to manage your estate for the benefit of your beneficiaries after your death. An additional benefit of inter vivos trusts is privacy.

A type of living trust, a revocable living trust can be changed or terminated during your lifetime. Like other living trusts, you can avoid probate with a revocable living trust and keep long-term control over your assets. You will also have a fair degree of control over how your assets they will benefit your beneficiaries. However, a revocable living trust also protects you from anyone with eyes on your assets in the rare event that you become mentally incapacitated. Under this mechanism, if you become mentally incapacitated or incompetent, your spouse or children are able to immediately access your assets for your benefit, without going through an arduous guardianship proceeding.

Another potential option is a pour over will. The big benefit here is that it can be integrated into a larger estate plan designed to avoid costly probate issues.  Probate is a notoriously lengthy, expensive, and stressful process. It typically requires your loved ones to go through an arduous court process to prove the validity of what you set forth in your will. After proving their case regarding your final intentions, your beneficiaries will then have to wait out the administrative process required by the court system before your assets are disbursed.

Unlike with a traditional trust, a pour over will allows you to maintain your property in your name during your lifetime. This is useful because a trust must be funded with existing assets. Thus, if for whatever reason you do not wish to put all your assets into a living trust while you are alive, a pour over will funds the trust after your death.

Mike S. · Answer

If your property is titled to the LLC, the only thing that your deed shows is that the property is owned by the LLC.

It does not show who owns the LLC.

If you only change the ownership of the LLC (ie the members are not anymore you and your wife but your living trust and your wife living trust) there will be no new deed as the LLC is still the owner of the property.

To change the members of the LLC you have to rely on your LLC operating agreement that may explains how this transfer may be done. If there is nothing specific about it, just "write" to your LLC to notify it that you have transferred your membership interest to your living trust. The LLC will acknowledge it and modify its members interest in its book. Do the same with your wife. Then at the next yearly state renewal, make sure that the new members are properly listed if your state requires so.

You don't need an attorney for this simple change of membership. You may need one however to draft your living trusts.

If your attorney says that you need a new deed, I would suggest that either you change attorney as he is trying to make money on your back or he should give you a good justification why it would be needed, as with the elements you gave us I don't understand why.

Mike S. · Answer

@Lam Le

Have you considered having multiple living trusts, at least one for each spouse? That would keep the LLC the same as today. When the inheritance taxes exemptions were lower, it was very common to have multiple trusts (A/B or A/B/C for instance) to limit the taxes. It is less frequent today as the limit has been raised and other strategies become more practical at these higher estate value. However having one trust per spouse also give some more flexibility in the way to handle some incapacity. For instance if one spouse become unable to manage his or her finance or medical proxy, would the other spouse at that time be the best trustee choice? It may be more flexible to introduce a family member as trustee only for that spouse without taking over also for the other still able spouse.

If you really want to go the single trust route, your LLC will probably need some modification as it would become a single member. Be aware that in some state the outside liability protection for single member LLC is greatly reduced compared to multi member one. Also it may change the way your LLC was taxed by the IRS (depending how it is right now).

Mike S. · Answer

@Lam Le

The same way you transfer membership from one member to another. Usually your operating agreement will explain it.

Your LLC will now have your living trust as member instead of you.

Just document on your living trust schedule that you transferred your membership and in the LLC document the change of member and record it if needed with the state.

As you are the member and it is your living trust that should be tax neutral.

Sean Morrison · Answer

A few issues I see. First, @Mike S. is correct, putting a single trust into the LLC would make it a single-member LLC would could forfeit some liability protections. Your living trust will not give you any asset protection.

Second, one of the estate planning benefits of owning property in an LLC is that you can put the LLC interest into the trust without transferring title to the property (in most states).

Third, if someone wants thier children to take over the business, not just inherit it, they must also include some business succession planning within your LLC to make sure that happens. What happens if one kid wants to pursue the business and the other doesn't? How do you avoid a liquidation?

Here's the real takeaway - if you have rental property and an LLC, it's probably worth having an estate planning attorney (with business and real estate investing experience) put together your trust. They'll cover these issues.

Chase Cannon · Answer

Lam Le - did you ever get an answer to your question about transferring your LLC to your trust? It's not very complicated but there are some documents that are probably not common to most people. Hope everything worked out

Account Closed · Answer

@Lam Le as simply as setting up a trust and transfer your LLC into it and recording the deeds of your property over to the trust. Find an attorney or experienced paralegal to accomplish the task. Cost should be under $1000

Lam Le · Answer

"one of the estate planning benefits of owning property in an LLC is that you can put the LLC interest into the trust without transferring title to the property (in most states)"-----How does it work? I am consulting with on estate planning attorney, she said a new deed is needed, we are in California.

Lam Le · Answer

Should I modify the LLC to have the trust as the only member or the third member (both of us are members originally)?

Mike S. · Answer

@Basit Siddiqi

Why do you want to deed the property to the trust? The question was to transfer the LLC to the trust. The property stays deeded to the LLC.

The only concern is how to properly transfer the membership of the LLC to the living trust.

How to transfer an LLC to a revocable living trust

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