How To Assign Your LLC Ownership Interest To Your Revocable Trust

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Transferring your Limited Liability Company (LLC) ownership interest into a revocable living trust is a smart estate planning move. It helps you avoid probate, maintain privacy, and ensure business continuity. But the process has legal, practical, and contractual twists that deserve careful attention. This article breaks down the key issues—sole-member vs. multi-member LLCs, operating agreements, government contracts, and the practical steps to a valid assignment.

We also offer an “Assignment Template: LLC Interest to Revocable Trust” for Premium subscribers to help streamline the process. Subscribe to Premium [here].

Why Transfer LLC Ownership to a Revocable Trust?

A revocable living trust gives you the flexibility to manage your assets during life and pass them on without the delays of probate. It can:

• Avoid Probate: LLC membership interests are personal property. If held individually, they’re subject to probate at death—time-consuming and costly. A trust bypasses that.

• Ensure Continuity: If you become incapacitated, a successor trustee can step in to manage the LLC.

• Protect Privacy: Probate is public; trusts are not.

• Provide Flexibility: You can retain control as trustee and beneficiary—and amend or revoke the trust at will.

• Offer Limited Asset Protection: While not as protective as irrevocable trusts, a revocable trust simplifies management and reduces some risks.

Legal and Practical Considerations

Before making the transfer, you’ll need to examine state law, your LLC’s governing documents, and your contracts. Let’s break it down:

1. Sole-Member vs. Multi-Member LLC

• Sole-Member LLC (SMLLC): You’re the only owner, so the transfer is simpler. Still, review your operating agreement and state laws. Most states allow a trust to be the sole member of an LLC.

• Multi-Member LLC (MMLLC): Things get more complex. You’ll likely need consent from the other members. Transfers may trigger buy-sell clauses, rights of first refusal, or other restrictions. Read the operating agreement carefully, and talk with your partners.

2. The Operating Agreement

This document governs how ownership can be transferred. Look for:

• Transfer Restrictions: Many agreements limit or prohibit transfers to third parties—including trusts—without approval.

• Consent Requirements: For MMLLCs, you might need majority or unanimous approval.

• Buy-Sell Provisions: These could require you to offer your interest to existing members first.

• Membership Classes: Different classes (voting vs. non-voting) can affect how your trust holds the interest.

• Transfer Procedures: These may include notice requirements or necessary amendments.

If your LLC doesn’t have an operating agreement, state default rules apply—and they may be strict. In an MMLLC, that could mean unanimous consent is required. You may want to amend your agreement before making the transfer.

3. Contracts That Could Trip You Up (Especially Government Ones)

Transferring ownership might create problems if your LLC holds contracts—especially government or SBA-certified contracts.

• SBA Rules: If you’re in a program like the SBA 8(a), SDVOSB, or minority-owned business certification, ownership and control matter. The SBA typically requires the qualifying individual (e.g., the service-disabled veteran) to own and control at least 51%. A revocable trust may work—if you remain both trustee and beneficiary. But you must notify the SBA, and you may need approval.

• Other Contracts: Commercial leases or loans may include “change of control” provisions that require notice or consent.

When in doubt, consult with a government contracts attorney or SBA specialist.

4. State-Specific Rules

Every state’s LLC and trust laws differ. Watch for:

• Filing Requirements: Some states require amended Articles of Organization if there’s a new member or a change of more than 20% ownership.

• Trust Provisions: Your trust must be able to own and manage business interests. Some states require specific trust language.

• Tax Implications: Generally, no tax issues arise when transferring to a revocable trust (since it’s a “disregarded entity” under IRS rules). But that changes if the trust is irrevocable. Talk to your tax advisor.

5. Is Your Trust Ready?

Make sure your trust agreement:

• Authorizes the trustee to manage business interests.

• Names a successor trustee who’s capable of running the LLC.

• Aligns with your operating agreement—especially on voting and management rights.

If not, have your estate planning attorney update it before transferring ownership.

Practical Steps for a Valid Transfer

Here’s your roadmap:

1. Review Governing Documents: Start with your LLC’s operating agreement, buy-sell provisions, and contracts. Secure necessary approvals.

2. Hold a Meeting: Whether you’re a sole member or part of a group, record the transfer with a resolution authorizing it. We’ve included a sample resolution in our template.

3. Draft an Assignment of Membership Interest Agreement: This is the heart of the transaction. Include:

   • The percentage interest transferred (usually 100% in an SMLLC).

   • The effective date.

   • Signatures from the LLC (for approval/consent), you (assignor), and the trustee (assignee).

   • Consideration (a nominal amount like $10 is common for estate planning transfers).

4. Update LLC Documents:

   • Amend the operating agreement to reflect the trust as the new member.

   • Amend Articles of Organization with your state, if required.

5. Notify Stakeholders: Let your bank, partners, lenders, and any government agencies (including the SBA) know. Update licenses, permits, and accounts.

6. Record the Transfer Internally: Update your membership ledger and keep a clean record of the resolution, agreement, and updated documents.

7. Consult the Pros: Legal and tax advisors are your best allies. Government contract holders should also loop in their compliance teams or SBA reps.

Assignment Template Available

Premium subscribers get access to our “Assignment Template: LLC Interest to Revocable Trust.” It includes:

• A board/member resolution

• A customizable assignment clause

The template is tailored for sole-member LLCs but can be easily adapted for multi-member LLCs with the right edits.

Final Thoughts

Assigning your LLC interest to a revocable trust is one of those decisions that sounds simple—but isn’t. Done right, it avoids probate, maintains privacy, and ensures your business doesn’t skip a beat if you’re no longer able to run it. But every LLC is different. Every trust is different. Every state is different.

Not sure where to start? Sign up for Premium and send us an email at [email protected] and we will help you get started.

So, review your documents. Check your contracts. Use our template. And most importantly—talk to the right professionals.

It’s your business. It’s your legacy. Let’s make sure it’s protected.

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