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

By Michelle Kaminsky, J.D.

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

By Michelle Kaminsky, J.D.

Revocable trusts, also known as living trusts, are versatile estate-planning tools used to pass property and other assets to loved ones upon your death. A revocable trust may be the sole member of a limited liability company (LLC), offering limited liability and tax advantages during the trust creator's lifetime and probate avoidance upon her death.

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Overview of Revocable Trusts

A revocable trust is a legal instrument that holds property managed by a trustee. The person creating the trust, known as the grantor, has access to the assets in the trust during her lifetime, often as the trustee, and may amend or terminate the trust at any time before her death.

Upon the death of the grantor, the trust can no longer be changed, and the successor trustee, previously chosen by the grantor, carries out the terms of the trust, which often includes distributing assets to beneficiaries.

Revocable trusts do not pass through probate, the court-supervised process of distributing a deceased person's estate. This probate avoidance means a faster distribution to heirs with no additional costs to the estate.

Another advantage to revocable trusts is that the successor trustee can step in to manage in case the grantor becomes incapacitated or cannot otherwise manage the assets in the trust.

Note, however, that assets in a revocable trust are not shielded from creditors, as the law considers them to still be the property of the grantor.

Single-Member LLCs

State law governs formation of LLCs, a type of legal business entity that can offer its owners, also called members, advantageous tax treatment by the Internal Revenue Service (IRS) and limited personal liability for the debts and obligations of the company. The IRS treats LLCs as a disregarded entity for tax purposes, which means that all income passes through to its members and is taxed on their personal income tax returns.

All states allow single-member LLCs, through which only one person or entity—including a corporation, other LLC, or revocable trust—owns the company.

Revocable Trust as the Sole Member of an LLC

A revocable trust that serves as the sole member of an LLC retains the same benefits as any other revocable trust, including avoidance of probate and the ability of the successor trustee to manage the grantor's assets if the grantor is unable to do so.

Similarly, an LLC provides limited liability regarding all of the assets in the revocable trust, adding an extra layer of protection for personal property, including private bank accounts, for the grantor.

Setting up a Revocable Trust as the Sole Member of an LLC

For this arrangement to take effect, you must create and manage both the LLC and the trust. Note that initial setup and annual renewal fees for the company can be costly.

To create a trust, you must draw up and execute a trust document according to your state's laws. Forming the LLC requires filing the appropriate forms and paying a fee with the state agency that regulates businesses.

It can be complicated to ensure everything is arranged properly to achieve the maximum benefits of having a revocable trust as the sole member of an LLC, so it's important to get the advice of an attorney experienced with living trusts before proceeding.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.