When clients execute a Living or Revocable Trust, one of the first things about which their estate attorney should advise them is that their assets should be transferred into their Trust. This process is often called “funding” the Trust. Having a Trust without funding it is like having a vehicle with no gasoline…it won’t get you very far!
One asset that clients often inquire about as far as funding relates to their membership interest in a limited liability company or LLC. The question posed is “Can I transfer my LLC membership interest into my Trust?” Answering this is a two-part question.
First, under Florida law, a “member” in an LLC has a very broad definition. Section 605.0102 Fla. Stat. states that any “person” may be an LLC member and it goes on to define a person as including an “individual, business corporation, nonprofit corporation, partnership, limited partnership, limited liability company, limited cooperative association, unincorporated nonprofit association…estate, trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or another legal or commercial entity.” So clearly a Trust can be the member of an LLC in Florida.
The second question to ask is whether there is anything in LLC’s Articles of Organization or Operating Agreement that would prevent the membership interest from being held in the Trust. In some instances, particularly if there are multiple non-family LLC members, the Operating Agreement will limit transfer of the LLC membership interest. If this is the case, the LLC member should have an attorney review the Operating Agreement before transferring the membership into his or her Trust. The attorney can advise on what steps are needed, if any, before the LLC interest can be placed into the Trust.
When possible, it is important to transfer an LLC interest into one’s Trust in order that the interest does not end up in probate.