A limited liability company (LLC) is a common type of business structure that lets its owners keep their personal assets safe from legal claims and, in most cases, avoid the burden of double taxation. Trusts, in contrast, can help eliminate the need for probate and help ensure that your heirs don’t have to worry about their inheritances being picked apart by creditors. Put together, these two very distinct kinds of entities can offer significant advantages for forward-thinking entrepreneurs and, when used strategically, can support long-term stability and help minimize risks to yourself, your estate, and your heirs.
However, putting an LLC and its assets into a trust isn’t always as straightforward as establishing an irrevocable life insurance trust or a special needs trust. More often than not, the structure of your business and its co-owners’ interests could dictate what options will work best for you. In some cases, the type of business you operate could also impact the process, with different rules applicable to companies with branches outside New York City and the State.
If you’re unsure, on the fence, or have questions about LLCs and your estate plan, contact Landskind & Ricaforte Law Group P.C. to schedule your initial, no-obligation consultation with one of our experienced New York City estate planning lawyers.
A Quick Overview of Trusts
Setting up an LLC can be time-consuming, but much of the process can be done at home. So long as you meet all the requirements outlined by the New York Department of State, you’re not likely to run into any real trouble during the formation stage.
Trusts, conversely, are a little more complex and subject to a greater number of state laws and federal statutes. To add to this confusion, trusts can’t be considered legal entities in the same way as a family-owned business. They are, instead, a special arrangement between multiple parties: the trustor, the trustee, and the trust beneficiaries. Trusts also fall into several different categories, with two of the most common being the revocable living trust and the irrevocable living trust.
Revocable Trusts
A revocable trust, or revocable living trust, is a trust that you establish in your own lifetime.
Since the trust is “revocable,” it can be changed or altered by the trustor at almost any point after formation, free from substantial limitations. You can also name yourself as trustee and retain control of most of your trust-held assets.
The downside to revocable trusts is that, because you retain control of your trust assets, there isn’t always a legal difference between your trust’s assets and your personal property, potentially exposing your estate to risk. It depends on your circumstances, but, as a general rule, revocable trusts are flexible tools that offer sufficient protection for most people, if not to the same extent or level as an irrevocable trust.
Irrevocable Trusts
Most irrevocable trusts have essentially the same structure as revocable living trusts. The main different lies in the terminology: as “irrevocable” may suggest, these trusts cannot easily be changed, altered, or revoked after formation. Any revisions you make are contingent on your beneficiaries’ unanimous approval and, in some cases, the court’s consent.
Ceding a small amount of control over your LLC assets may not feel comfortable, but irrevocable trusts succeed where others fall flat, typically keeping 100% of your trust assets 100% shielded from people who don’t have your family’s best interests at heart. This added layer of security is one of the key reasons that irrevocable trusts are often integrated into high-net-worth estate plans.
3 Big Benefits of Placing Your LLC in a Trust
Your LLC ensures that, under most circumstances, you can’t be held personally liable for claims related to your standard business operations. In other words, you don’t have to worry about losing your house or your life savings if you’re found at fault for an accident. The only assets you stand to lose will typically be business-owned assets.
However, LLCs have their own drawback: they limit your liability while you are still alive, but upon your death, any LLC-controlled assets that haven’t already been accounted for could be treated as your personal property—and, as a result, end up in probate.
So, if you think there’s a good chance that, now or someday in the future, your estate could be contested by a creditor or disgruntled heir, transferring your LLC assets to a trust can provide a robust layer of protection for yourself and your loved ones. It can also expedite succession, letting beneficiaries obtain their inheritances without going through probate.
Putting an LLC into a trust can offer other advantages, too. These include, but are not limited to, the following:
Privacy
Probate takes place in court. Almost everything that happens in probate is recorded by the court and made available to the general public. This creates the potential for problems, particularly if you wish to maintain your family’s privacy and keep your financial and legal affairs away from prying eyes.
You Can Set Your Own Terms
Since a trust can keep your business assets out of probate, you’ll have much more freedom in setting terms and conditions for the eventual redistribution of your trust assets. You could, for instance, tell your successor trustee to award a certain share of your assets to the beneficiary you think is best equipped to keep your business alive in your absence while providing to your other heirs in different ways.
Your Trust Could Be a Lifeline for Your Business
You may be able to configure your trust to shield yourself from uncertainty, too. If you’re seriously injured in an accident or find yourself struggling with cognitive decline, you likely won’t be in a position to continue making big decisions for your business. But with a trust, you can establish strong contingency plans—plans that may well keep your company afloat should an emergency prevent you from naming an interim manager or an eventual successor.