Putting a Company into a Trust
Putting a company into a trust is an important part of estate planning and business structuring. It is important to interface your business structure with your living revocable trust. Many people will form an LLC or corporation in order to save their company in the event of a lawsuit and forget to pay attention to their estate plan. Yet putting a company into a trust is a fundamental part of asset protection. If you get in trouble in your business, you want to protect yourself. If you have troubles personally, you want to protect your business.
No matter what you are doing in your business, whether it be helping others, rehabbing houses, trading stocks, or selling products, your business is probably your biggest asset. It is well recognized that a business makes a good target for lawsuits. You have spent your life working to build your business, but how much effort have you put into protecting it? And beyond lawsuits, the sad truth is that many small businesses don’t survive the death of the founder.
When the founder dies, many times the business has problem getting “authority” for someone to step right in and “run” it. If you’re dead, it is difficult for you to sign your name. No one can sign your name without a probate order, and once the business gets caught in the probate process, it takes months or sometime years to emerge from the grasp of the lawyers and courts. Without putting a company into a trust, many small businesses cannot weather the death of the founder.
Stock or Membership Interests- Putting a Company into a Trust
When you form a corporation or an LLC for your business, part of the formation is to establish ownership of the company. Ownership is established by issuing stock certificates for a corporation. For an LLC, you issue certificates of membership interests. It really doesn’t matter how many shares are issued, as whoever owns the majority of shares owns the company. If you have half the shares, you own half the company. These certificates are what you use in putting a company into a trust.
Putting a company into a trust is not hard. If you are just forming your company, just issue the certificates in the name of your trust. If you already have issued the certificates, simply look on the stock certificates or membership interest certificates. There will be a date entry for surrender of cancellation of the certificate. Enter the date the certificate was surrendered, and then simply issue another certificate. If you surrendered certificate #1, you will not reissue certificate #1. You will reissue another certificate, say certificate #4. Fill out the ledger and the certificate in the name of your trust.
When putting a company into a trust, remember the trust has three parts to the name. (1) the name of the trust – BIG TIME TRUST, (2) Date of the trust – Under Agreement 1/22/2014 or U/A 1/22/2014, (3) John Timely (your name) Trustee or John Timely TTEE. Be certain to include all three parts of the trust name on your certificates.
When putting a company into a trust, beware that S corporations , those corporations taxed under Subchapter S of the IRS Code, or an LLC taxed under Subchapter S of the IRS Code, can only be owned by a“Subchapter S qualified trust.” If your trust doesn’t meet the criteria of a “Subchapter S qualified trust,” then the IRS will reclassify you company as a C corporation tax structure.
Note: the living revocable trusts I have in the LegaLees Accumulation and Preservation of Wealth sets do qualify as a “subchapter S qualified trust,” so don’t worry about that. If you are using another version of a living revocable trust, know that many of them don’t qualify, so you may have to amend your trust.
The important thing to remember is that putting a company into a trust is a smart asset protection and business move.
By Lee R. Phillips
HI MR. PHILLIPS MY QUESTION IS HOW MANY LLC’S DO I NEED!
I set up a llc for my landscape business . I’m starting a realestate business. I want to put my
personal realesate in a grantor trust. I’m opening a IRA & I have personal property, cars and cash
Derek,
If you are going to be doing real estate as a business then you will want to put it into a separate LLC. I would wait until you are actually making money in real estate before forming the LLC. The rest of your personal assets and real estate should go into a living revocable trust along with any LLCs you own.
Hi Lee,
question about filing 83b when the shares of a start-up are issued in the name of the family’s revocable living trust. Who should be listed as the taxpayer(s) on the 83b – the Family Trust or the individual taxpayer(s) – or does it matter?
Ash
Ash,
The IRS doesn’t care if your revocable trust exists. Just use the individuals name and Social Security Number.
I formed an LLC for my trucking company last Dec, I want to put it into a trust, is it too late to do so?
Shelly,
You can put your LLC into a trust at any time.
In this case, does the name of the LLC need to be changed to the name of the Trust or is it just changing the member to the Trust in the LLC?
Lou,
It is just changing the member of the LLC to be the trust instead of you. The trust and the LLC will never have the same name.
How would I put a C corp in a trust!?
Mandy,
You issue new stock certificates in the name of the trust and let the state know that the trust is the new stock holder.
How do you let the State know your Trust is the new owner of your corp? Is there a form to record with the State? Thx
Ed,
You would file an amended articles of organization with the state if the ownership in your state is required to be shown on the articles of organization. If ownership is not shown at the state level, the change is internal in your membership log, certificates of membership and operating agreement.
What chance of changing my home which is under a company into a family trust. The shareholders are my two sons and myself
Fil,
All you have to do is create a new deed that transfers the home to your trust with everyone signing.
Can i open a business in my toddlers name to avoid loosing it in a separation down the road .
God forbid but life is unexpected.
I forgot to mention I live in Canada so my question is in regard to the Canadian law
Bita,
I am not an expert in Canadian law, so wouldn’t be able to answer this question.
I’m a sole proprietorship business owner. I invented an app that is being developed with investors. I get 10% shares in said company. I’ve recently opened a corporation company that I plan to allocate all my current business to by best year. My question is, under which company should I assign the shares to? And why?
You will probably want to set up an LLC to own your shares in the company. This will provide you will protection should the deal go south.
Mr. Phillips, how hard would it be to change my will into a trust and incorporate a LLC or FLC when two different states are involved?
You can just create a new trust and revoke the old trust. There is no actual assets owned by a will. To incorporate a company in two different states you will first organize the company in one state and then register it as a foreign entity in the other state.
I am a real-estate investor in Florida looking to close my first deal on a rental property. Should I form an LLC prior to acquiring the property. Also should I make two LLC one in Delaware and have that one own the Florida one.
Thank you
Evan,
Ideally, you would make the LLC prior to the closing and have the closing done in the name of the LLC, so the property is moved directly into the LLC from the seller. Remember, the LLC ownership might affect the insurance coverage. Definitely do not put an LLC in Delaware and one in Florida. Just have the Florida one. You don’t gain anything by having the Delaware LLC. You can certainly invest in real estate without an LLC, so if it is a good deal don’t hold it up for an LLC. Remember, in Florida in order to get the charging order protection you need a multiple member LLC.
You issue new stock certificates in the name of the trust and let the state know that the trust is the new stock holder.
(Can I use an existing Land Trust or do I need to set up a new trust? If so what form can I use and what kind of trust. I have a C Corp)
why a revocable trust vs. irrevocable re: LLC?
Moe,
If it is a revocable trust, technically it is still yours. If you use an irrevocable trust you are giving the property away to the trust and the beneficiaries. You basically can’t establish an irrevocable trust where you get the benefits of the assets in the trust.
I’m newly married just made 2yrs I live in Texas and I’m looking to start a new business but I’m hesitant of putting the business in my name as the owner just in case the marriage goes soft. My question is can I put the business in a trust as protection against a divorce? How should i go bought this? I love my spouse but God forbid if it does not work I do not want to be left broke living under a bridge.
Chris,
Concentrate on your marriage. (Never thought I would be a marriage counselor). Involve spouse in the business and work together. Bad news – you live in TX. That is a community property state, anything you build or create in your marriage is automatically half your spouse’s property. A trust wouldn’t protect anything anyway.
What if the business was established when the couple was separated for more than a year? Does that still count as common property?
Dear Lee,
In Florida where I live, I acquired a small property at sheriff’s auction in my name for 10k.
The Fair Market Value is around 200k.
It will be a rental property for now.
Besides the goal of legal protection by setting up an LLC and deeding the property into the LLC,
I look to achieve 2 other goals with the entity or entities set-up for this rental property.
Namely, Goal 1:
Shelter from Medicaid/Medicare both for the qualification for the programs and for MERP.
(MERP recovers the cost of certain long-term-care services that a Medicaid recipient receives after the age of 55.) As such, I believe that the government can go after the property, even in an LLC?
I hope to never have to use Medicaid/Medicare, want to be left alone in my last months.
And certainly in the months or years before passing refuse to waste my time and all I worked for on doctors, nurses, and a nursing home to avoid “the unavoidable” and extend a low quality life.
This I made this very clear to my only heir, my only son.
However, I am concerned that under social – and legal pressures to extend my life, my son might be unable to refuse what medical government programs offer, even be forced to use them, and I still end up on machines and in a place where my life is extended – against my will.
Namely, Goal 2: avoid probate.
For both the latter 2 goals, it seems to me what I should do is:
Create an LLC and put the LLC in an irrevocable trust with my son as the sole trustee, whereas the irrevocable trust will say that during my lifetime the rental property is for my benefit and at my passing for his. (I have only one child)
The only member of the simple LLC shall then be that irrevocable trust.
Q: Is this correct? Did I inform myself well enough, and made the correct conclusion?
Q: Will the rental property acquired for 10k and with a FMV of 200k receive the step-up basis if my child decides to sell it after my passing out of the LLC and out of the irrevocable trust?
Patricia,
Moving property into an LLC will not protect it from Medicaid, because you still own the LLC, so you have the asset, just in a different form (membership interests in the LLC.). you have to move things 5 years before the Medicaid issue comes up, or they can go back and get them.
An LLC will not avoid probate. The probate avoidance to is a living revocable trust. The trust would have to own the membership interests in the LLC.
Lee,
I have designated one of my irrevocable trusts (not activated yet) to become the owner of a LLC. I’m the Settlor/Beneficiary. I have not created the LLC yet, since this will be a new entity. My trusts are generated out of Wyoming. I will also create the LLC in Wyoming as well. I am seeking maximum asset protection. The business will be investing in securities and crypto currencies (all investments will be trust assets, no clients). The LLC will have accounts on these exchanges/brokerages.
Since my trustees will be doing all the investments, I need to understand my role and the trustees roles with regards to the LLC. I don’t know if member-managed is the way to go or manager-managed. I’m thinking ahead in case of a lawsuit. Would a judge look to pierce the trust, LLC, or both? Also, I may be looking at startup assets for this LLC up to $50 million. Would this disqualify my trust from owning a LLC or just as a member-managed LLC?
Wayne,
I think you are more complicated than you need to be. Unless the irrevocable trust is a special Wyoming asset protection trust, you can’t create an irrevocable trust where you are the grantor and beneficiary. You need to realize that there is a “waiting period” before the assets are “locked down” and protected. If the LLC is going to be owned by the trust then the assets in the investment accounts will have to be assets of the LLC on the trust. unless there is a billion dollars in the LLC, a simple LLC in your state with the appropriate number of members would handle 99.9% of the issues and be a lot less money.
Lee,
Myself, spouse and single adult child, having 1/3 ownership each, are stating a real estate investment entity. We are looking at a parent company structured as a multi member LLC or a corporation and each property would be held in a separate LLC owned by the single member parent entity. Our concern is charging order protection in Florida with this arrangement. Is this correct? Would the trust have 2/3 ownership and the adult child the other 1/3? A plus of a parent entity as a single member of LLC(s) is the IRS views a single member LLC as a disregarded entity which benefits from having to complete individual tax returns for each LLC.
In addition I have a Florida mortgage corporation. It is not in a trust. I could transfer ownership the existing corporation to the trust. However, that may or may not be a good idea since the mortgage industry is so heavily regulated. Would it be a good idea to include it in the trust or leave outside.
Hi, I have taken out 3 loads in the end to survive the Corona. Things are going god. But I got behind trying to pay them all at once. One creditor put a block on my credit card machine and its causing problems. Would a trust atop these action to give me time to work it out literally.
Major Lee,
A living revocable trust is what we call a disregarded entity. Your creditors, courts, IRS, and everyone simply forget about the trust and look to you for any payments, etc. It’s as if the trust doesn’t exist. If you try to set up an irrevocable trust that would protect against creditors, the courts will simply set it aside and let your creditors get the assets, because if you don’t move the assets prior to a set time before your debt is incurred, the courts call any transfer away from yourself after that set time a fraudulent conveyance. The set time is usually five years prior to incurring your debt.
I am currently transferring rental property’s into an LLC through a quit claim deed. I also want to prepare a living revocable trust to be the sole member of the LLC. When preparing the trust, I am I correct that:
1. I, personally am the grantor?
2. The LLC is the Trustee?
3. The beneficiary – Do I name myself first, and my heirs as successor beneficiaries?
4. The initial trust property should be the property owned by the llc, or the llc itself?
I am currently transferring rental property’s into an LLC through a quit claim deed. I also want to prepare a living revocable trust to be the sole member of the LLC. When preparing the trust, I am I correct that:
1. I, personally am the grantor?
2. The LLC is the Trustee?
3. The beneficiary – Do I name myself first, and my heirs as successor beneficiaries?
4. The initial trust property should be the property owned by the llc, or the llc itself?
Thank you!
I have a rental property that I am placing in an LLC and then I want a trust to own the LLC. I am just trying to verify that I am listing the proper people as Trustor, trustee and beneficiary. I also want to verify that the initial property in the trust will be the LLC not the actual property owned by the LLC.
Am I the Trustor, Trustee and first beneficiary?