LLC Companies & Living Trusts
An LLC has a formal designation as a limited liability company. Limited liability companies are a way to create protection for assets and restrict creditor access to assets owned by the company. Limited liability companies and trusts work together to create an additional layer of asset and tax protection.
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Limited Liability Company
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A limited liability company makes it extremely difficult for a creditor to reach the assets of the company. For example, many trust owners have small businesses where they are worried about the succession of their business, and what will happen to the business after the death or incapacitation of the owner. Placing the business inside a limited liability company within a trust offers solutions to this problem, since a trust can be a limited partner that owns shares in the limited liability company.
Tax Benefits
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It is a common financial planning technique to use limited liability companies to solve tax problems. For example, a Florida resident may own a vacation home in Rhode Island, which will be subject to the Rhode Island estate tax when the person dies. Florida does not have an estate tax, and placing the home inside a limited liability company placed inside a trust eliminates the Rhode Island estate tax problem and the need for ancillary probate in Rhode Island for one asset of the estate. A limited liability company inside a trust is required to file any state income tax returns, due the state of organization of the limited liability company, which means that a trust tax return and a limited liability company tax return may be required.
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Structure
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The structure of a limited liability company is such that there are no general partners, only limited partners called members. Members have no personal responsibility for the debts of the limited liability company. Layering the limited liability company inside a trust offers the protections afforded by limited liability and the fiduciary protections of a trust. Since the trustee is responsible for management of the shares of the limited liability company held inside the trust, family members do not have to handle the daily burden of regulatory requirements of the limited liability company.
Construction of the Limited Liability Company
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Limited liability companies where a trust owns the membership shares is the ultimate setup for asset protection, but it has to be constructed properly, and the law that applies varies by state. It is not wise for a person to attempt to set up a limited liability company or trust on his own; hire a lawyer experienced with trusts and the formation of limited liability companies.
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