Can a Revocable Trust Be a Sole Member of an LLC?


A revocable trust is an estate planning technique commonly used by individuals to hold title to their assets. Also referred to as a living trust, nearly every type of property can be held in a trust, including a person's ownership interest in a limited liability company, or LLC. Since all states and the District of Columbia authorize the creation of an LLC with just one member, a revocable trust can be the sole member of an LLC.

Revocable Trust Basics

Revocable trusts are created under state law. The trust is created with a written document, commonly referred to as a trust agreement, signed by the person creating the trust -- called the grantor. A revocable trust can be amended or revoked by the grantor any time during his lifetime, and the trust assets are essentially treated as his own. The grantor will also act as trustee and beneficiary of the trust during his lifetime, with the trust agreement specifying how the trust assets shall be handled when he dies.

Single-member LLC Basics

LLCs are created under state law or District of Colombia law, with each enacting its version of a limited liability company act. The various acts are similar in many ways, one of which is defining an LLC member as a "person" and further defining "person" to include natural persons and other legal entities such as a partnership, corporation or any form of trust. Although states generally required LLCs to have a minimum of two members when LLC laws were first enacted, every state and the District of Colombia have amended their laws to allow an LLC to be created with only one member.

Managing the LLC

Managing the day-to-day operations of a single-member LLC with your revocable trust as the sole member is essentially the same as if you were named the sole member. The only significant difference is to ensure that important legal documents are signed so as to properly designate the trust as the LLC owner. This is accomplished by signing documents to identify you as trustee --- e.g., John Jones, Trustee -- rather than simply signing your name alone.

Personal Asset Protection

A common misconception is that creating a trust to hold title to your assets offers a measure of protection from the debts you incur in your own name. However, a creditor can collect on a judgment made against you by enforcing it against the assets in your trust. Creating an LLC with your trust as the sole member likewise offers no additional protection from your creditors. Recent state court cases indicate a single-member LLC cannot be used to shield assets from a judgment creditor. In a similar vein, bankruptcy court trustees are authorized to take control of and liquidate, if necessary, the assets of a single-member LLC to pay creditors if the member files for Chapter 7 personal bankruptcy.

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