Estate planning guide
An LLC in Your Living Trust
Your trust can own your LLC interest, so your successor trustee can step in without probate.
The short answer
Yes, and often it should
Many Southern California property owners hold rental property in a limited liability company, and many small business owners run their businesses through one. An LLC is separate from its owners, but your ownership interest in the LLC is property that belongs to you. Like a house or a brokerage account, it can be held in your living trust.
Placing your LLC interest in your trust lets your successor trustee step in without probate. Here is how it works and what to check before you make the transfer.
The same steps apply whether your LLC owns a single rental house, a small apartment building, or an operating business. What changes from one LLC to the next is the operating agreement, the other members, and the tax elections, which is why each of those gets its own section below.
The trust owns the interest; the LLC owns the property
The trust does not take title to the rental property or the business assets. The LLC keeps owning those. What moves into the trust is your membership interest, meaning your ownership of the LLC. The liability protection the LLC provides generally stays the same. A revocable trust, for its part, does not shield your assets from your own creditors.
Why it matters
An LLC interest held in your own name is a probate asset. If you die, a court may need to appoint someone before anyone can exercise your rights as a member, which can leave a property or business without clear management. A business that cannot act quickly, for example to renew a lease or pay a contractor, can lose tenants or customers while a court case is pending. When the interest is in your trust, your successor trustee can step in under the trust’s terms, and the same is true if you become incapacitated. If your LLC owns property in another state, holding the LLC interest in your trust can also help your family avoid a separate court proceeding there.
Read the operating agreement first
The operating agreement may restrict transfers, require consent from other members, or say what happens when a member dies or becomes incapacitated. Many agreements allow a member to transfer an interest to the member’s own revocable trust, but not all do. If the agreement is silent or unclear, amending it before the transfer avoids questions later.
How the transfer is made
Signing your trust does not move the interest on its own. The transfer is a separate step, usually made with a written assignment of your membership interest to yourself as trustee of your trust. The LLC’s own records, such as its list of members and any membership certificates, should then be updated to show the trust as the member. If you manage the LLC, the operating agreement should also say who manages it if you cannot.
Single-member and multi-member LLCs
For a single-member LLC, the transfer is usually simple, because you are the only member who needs to agree. If you and your spouse own the LLC together, both interests can usually go into your joint trust. For an LLC with other members, their consent may be required, and a buy-sell agreement may control what happens to your interest at your death. The trust and the operating agreement should point the same way.
Taxes
Moving your LLC interest into your own revocable trust generally does not change how the LLC is taxed, and it generally does not trigger a California property tax reassessment of real estate the LLC owns. Two cautions apply:
If the LLC has elected to be taxed as an S corporation, the trust needs terms that keep that election intact after your death.
After your death, transfers of LLC interests to your heirs can trigger reassessment of the LLC’s real estate, and the rules that can protect a home passing from parent to child generally do not apply to LLC interests.
Coordinate with your advisors
Your accountant and, if you have one, your business attorney should know that your trust holds the LLC interest. Our trust funding checklist covers business interests along with your other assets, and our guide to moving a mortgaged home into your trust covers real estate you own directly.
Talk with us
Montanez Yu prepares complete estate plans for individuals and families throughout California, including revocable living trusts, wills, powers of attorney, and advance health care directives. Estate planning consultations are free, and every plan is a flat fee, quoted in writing before we begin. Call (951) 444-7407 or request a free consultation.
This guide is general information about California law, not legal advice for your situation. Reading it does not create an attorney-client relationship.