assignment of llc interest to revocable trust form

How to Transfer Your LLC into a Trust

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Limited Liability Companies (LLCs) are flexible business structures that offer personal liability protection to their members. Transferring LLC membership interests into a trust can be a smart move for various reasons, such as protecting the LLC membership interests from creditors, ensuring a smooth transition of business ownership, or incorporating estate planning strategies . This post will guide you through the process of transferring LLC membership interests into a trust.

Understanding LLCs and Trusts

An LLC is a business structure in the United States that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. Trusts, on the other hand, are legal arrangements that allow a third party, or trustee , to hold assets on behalf of beneficiaries. Trusts can be either revocable or irrevocable, offering different levels of control and tax benefits.

Transferring an LLC to a Trust: Benefits and Drawbacks

Transferring ownership of a Limited Liability Company (LLC) into a trust can be a strategic estate planning move, offering several benefits while also presenting certain drawbacks. This section examines the implications of such a transfer, focusing on its impact on estate planning, asset protection, and business continuity.

Benefits of Transferring an LLC to a Trust

• Estate Planning and Probate Avoidance : One of the primary benefits of transferring an LLC into a trust is the facilitation of estate planning and avoidance of probate. When an LLC is owned by a trust, the business can be passed to beneficiaries without the need for probate, which can be time-consuming and costly. This ensures a smoother transition of control and can maintain the confidentiality of the estate's assets.
• Continuity of Business Operations : By placing an LLC in a trust, the grantor can outline specific instructions for the business's operation and succession, ensuring continuity. This is particularly important for family-owned businesses or sole proprietorships where the sudden loss of the owner could disrupt operations.
• Asset Protection : Trusts, especially irrevocable ones, can offer enhanced asset protection from creditors and legal judgments. When an LLC is held within such a trust, its assets can be shielded, providing an extra layer of security against personal liabilities.
• Tax Planning Advantages : Transferring an LLC into a trust can also facilitate certain tax planning strategies. For instance, an irrevocable trust may help in minimizing estate taxes, as the assets transferred into the trust are removed from the grantor's taxable estate.
• Flexibility in Management and Distribution : Trusts allow for detailed instructions regarding the distribution and management of the LLC among the beneficiaries. This can include specifying who manages the business after the grantor's death and how profits are to be distributed, allowing for tailored estate planning.

Drawbacks of Transferring an LLC to a Trust

• Complexity and Cost : The process of transferring an LLC into a trust involves legal complexities and costs. Setting up the trust, drafting the transfer documents, and potentially restructuring the LLC's operating agreement to comply with trust ownership can require significant legal expertise and expense.
• Limited Control : For revocable trusts, while the grantor retains some level of control, transferring an LLC into an irrevocable trust means relinquishing direct control over the business. This might not be desirable for business owners who wish to maintain hands-on management.
• Potential Tax Consequences : Depending on how the trust is structured, there could be immediate or future tax implications, including changes in how the LLC's income is taxed. If not carefully planned, this could lead to unfavorable tax treatment or unexpected tax liabilities.
• Impact on Financing and Business Relationships : Changing the ownership structure of an LLC to a trust can affect the business's ability to secure financing, as lenders may have reservations about lending to a business owned by a trust. Additionally, it may impact relationships with vendors, clients, and partners who may require reassurance regarding the continuity and management of the business.
• Regulatory and Compliance Requirements : Trust ownership of an LLC may trigger additional regulatory and compliance obligations, depending on the jurisdiction and the nature of the business. This can include changes in reporting requirements, business licenses, and registrations.

Steps to Transfer LLC Membership Interests into a Trust

• Choose the type of trust: Depending on your needs and objectives, you can choose between a revocable trust (which can be altered or cancelled by the grantor) or an irrevocable trust (which cannot be modified without the permission of the trustee).
• Select a trustee: The trustee will be responsible for managing the trust's assets, so choose someone trustworthy and competent.
• Create a trust agreement: This is a legal document that outlines the terms and conditions of the trust, identifies the trustee and beneficiaries, and provides instructions for managing the trust assets.
• Assign the LLC membership interests to the trust: This process typically involves completing an assignment form and may also require an amendment to the LLC's operating agreement.

Process of Transferring LLC Membership Interests into a Trust

• Review the LLC's operating agreement: This document may contain specific rules about transferring membership interests that must be complied with.
• Prepare an assignment of membership interests: This is a legal document that transfers the LLC membership interests from the member to the trust.
• Amend the LLC's operating agreement: This step may be necessary to officially recognize the trust as a member of the LLC.
• Record the transfer: This involves updating the LLC's membership ledger to reflect the transfer.

Costs Involved in Transferring an LLC to a Trust

Transferring ownership of a Limited Liability Company (LLC) into a trust is a decision that comes with various costs. These costs are multifaceted, encompassing legal, administrative, and potentially tax-related expenses. Understanding these costs is essential for anyone considering this estate planning strategy to ensure it aligns with their financial and operational goals.

Here's a breakdown of the potential costs involved:

1. Legal Fees

The most significant expense in transferring an LLC to a trust is likely to be legal fees. This process requires the expertise of an attorney who specializes in estate planning and business law to ensure the transfer complies with state laws and serves the intended estate planning purposes. Legal fees can vary widely based on:

• The complexity of the trust structure and the LLC's operating agreement.
• The jurisdiction in which the LLC and trust are established.
• The attorney's experience and billing rates.

Typically, legal fees for setting up a trust and transferring an LLC into it can range from $2,000 to $5,000 or more.

2. Trust Setup Costs

Setting up a trust itself involves costs, separate from transferring the LLC. These costs include drafting the trust document, which outlines the terms, beneficiaries, and trustees, among other critical details. If a revocable living trust is chosen, the cost might be on the lower end of the spectrum, while more complex trusts, such as irrevocable trusts designed for specific tax advantages or asset protection, can be more expensive to establish.

3. Document Preparation and Filing Fees

Transferring an LLC to a trust requires preparing and filing various documents, including:

• Amendments to the LLC's operating agreement to reflect the trust as the new owner.
• Assignments of membership interest, transferring the owner's interest in the LLC to the trust.
• Possible state filings to update the LLC's records regarding the new ownership structure.

These document preparations can incur fees, both from the professionals drafting them and from any filing fees required by state agencies or registries. While these fees may be relatively minor compared to legal fees, they can add up, especially if the LLC operates in multiple states.

4. Appraisal and Valuation Costs

In some cases, especially with irrevocable trusts, it may be necessary to obtain a formal valuation of the LLC to properly document the transfer for tax purposes. The cost of a business valuation can vary significantly based on the size and complexity of the LLC, ranging from a few thousand dollars to tens of thousands for larger enterprises.

5. Tax Advisory Fees

Given the potential tax implications of transferring an LLC into a trust, consulting with a tax advisor is advisable. This consultation can help identify any immediate tax liabilities triggered by the transfer, such as gift taxes, and plan for efficient tax treatment of the LLC's income going forward. Tax advisory fees will vary based on the advisor's expertise and the complexity of the tax planning required.

6. Ongoing Trust Administration Costs

Once the LLC is transferred to the trust, there may be ongoing costs related to administering the trust. These can include annual trustee fees (if a professional trustee is appointed), tax preparation fees for trust tax returns, and any other expenses associated with managing the trust's assets. These costs will depend on the size of the trust, the complexity of its assets, and the terms outlined in the trust agreement.

Transferring Your LLC to a Trust: the Differences Between States

LLC trust transfers vary a lot between states. There are differences in documentation, tax implications, approval requirements, and registration/public records adjustments. Here are a few examples.

• Documentation Requirements : California generally requires a formal amendment to the LLC's operating agreement to reflect the change in membership to a trust. Additionally, an Assignment of Membership Interest form should be executed and kept with the LLC's records.
• Tax Implications : Transferring an LLC into a trust in California may have implications for property taxes if the LLC owns real property, due to Proposition 13. The transfer could potentially be seen as a change in ownership that triggers a reassessment of property value unless a specific exclusion applies.
• Approval Requirements : No state-level approval is typically required for transferring membership interest to a trust, but the LLC's operating agreement may require the consent of other members.
• Registration and Public Records : California does not require the trust to be registered or the change in LLC ownership to be made public beyond the internal records of the LLC and potentially county records for property tax purposes.
• Documentation Requirements : Similar to California, New York requires an assignment document to transfer the LLC membership interest to the trust. The operating agreement should also be reviewed and possibly amended.
• Tax Implications : New York State might impose income tax considerations on the transfer, especially if the LLC is profitable. Consultation with a tax advisor is advisable to navigate these complexities.
• Approval Requirements : New York LLCs generally require the consent of all members for a transfer of membership interest unless the operating agreement specifies otherwise.
• Registration and Public Records : New York does not mandate that this transfer be registered with the state, but the operating agreement and any amendments should be updated and kept with the LLC's records.
• Documentation Requirements : Florida requires the execution of an assignment document to transfer LLC membership interest to a trust. This document should be notarized and kept with the LLC's official records.
• Tax Implications : Florida does not have a state income tax, which simplifies the tax implications of such a transfer. However, documentary stamp taxes may apply if the LLC holds real property and a mortgage.
• Approval Requirements : The transfer of membership interest usually requires adherence to the LLC's operating agreement, which might necessitate approval from other members.
• Registration and Public Records : While Florida does not require the trust itself to be registered, any changes affecting the LLC's management or the information on file with the Florida Department of State must be updated through annual reports or amendments.
• Documentation Requirements : Texas also requires an assignment of membership interest to transfer ownership into a trust, along with potential amendments to the LLC's operating agreement.
• Tax Implications : Texas does not impose a personal income tax, but the franchise tax implications for the LLC should be considered, especially if the transfer changes the management structure.
• Approval Requirements : Depending on the LLC's operating agreement, member consent may be required for the transfer.
• Registration and Public Records : Texas requires the LLC's public records to be updated if there is a change in the management structure. This is done through filings with the Texas Secretary of State.

Consider Seeking Professional Assistance

The process of transferring LLC membership interests into a trust can be complex, involving legal considerations, tax implications, and potential changes to the operation of the LLC. Therefore, it is highly recommended to seek advice from a qualified attorney or tax advisor who is familiar with these matters. They can provide guidance tailored to your specific situation and help ensure the transfer is carried out correctly and in line with your objectives.

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LLC Membership Interest Assignment

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What is an LLC membership interest assignment?

An LLC membership interest assignment is a document used when one member of a limited liability company ("LLC") wishes to transfer the entirety of their interest in an LLC to another party . This document is often used when a member of an LLC is leaving or otherwise wants to give up the entirety of their interest in the company. Using this document, the current owner of shares in the LLC transfers all of them over to another person or entity.

A limited liability company , also known as an LLC, is a corporate structure that protects its owners from being personally liable for debts and liabilities of the company . LLCs do not pay taxes on their profits directly. Instead, profits and losses are passed through to the individual members, who report them on their personal tax returns.

What is the difference between an LLC membership interest assignment and an LLC membership purchase agreement?

Though both documents involve the transfer of interest in an LLC from one party to another, these two documents serve different purposes. The LLC membership interest assignment transfers the entirety of one person's interest in the LLC to another person. It is also not a sale document.

An LLC membership purchase agreement is the sale of some portion of a party's interest in an LLC to another party.For example, if someone owned 50% interest in an LLC, they could sell 25% of their interest in the LLC to another party and keep the remaining 25% interest for themselves.

Is it mandatory to use an LLC membership interest assignment?

Yes, using an LLC membership interest assignment is mandatory in most states. In the few states where it is not mandatory, it is still highly advisable to use this document to be sure to protect the interests of the parties involved and to make sure all the members of the LLC are informed about the ownership transfer.

What is "membership interest"?

Membership interest is a party's ownership stake in an LLC. It represents the parties' right to share in the profits and losses of the LLC and to receive distributions from it.

What are the prerequisites of an LLC membership interest assignment?

Prior to creating an LLC membership interest assignment, several things should happen. Firstly, the parties should review the LLC's operating agreement . This document may contain restrictions or requirements for the transfer of interest in the LLC. For example, the operating agreement may require that existing members of the LLC have the right to buy the interest in the LLC before it is sold to any outside third party.

The parties to the agreement should also get consent to the sale from the current members of the LLC. This is not always necessary, but it is common and usually considered good practice.

Before agreeing to the terms of the LLC membership interest assignment, the new owner should also do research into the LLC to be sure that it is in good standing and not involved in ongoing litigation or bankruptcy proceedings.

Who is involved in an LLC membership interest assignment?

The LLC membership interest assignment includes the party giving up their interest in an LLC and the party receiving the interest in the LLC. Both of these parties can either be individual people or entities, like a business or charitable organization.

What has to be done once the LLC membership assignment agreement is done?

Once the LLC membership interest assignment is done, it should be signed and dated both the assigning party and the receiving party . All members of the LLC should be notified of the transfer. This notification usually happens by providing a copy of the Assignment and any related documents to the LLC's registered agent or manager. Information about the process is typically specified in the LLC Operating Agreement . In some states, transfer of interest in an LLC requires that formation documents be updated and refiled with the appropriate state office to reflect changes in membership. This may also involve filing an amendment to the Articles of Organization. The LLC should be sure to update its bank accounts, contracts, licenses, and permits as necessary to reflect the membership change. Finally, the LLC should maintain accurate records of the transfer of interest, saving for future reference copies of the Assignment Agreement, amended Operating Agreement, consent of members, and any other relevant documents.

Is it necessary to register the LLC membership interest assignment?

In some states, transfer of interest in an LLC requires that formation documents be updated and refiled with the appropriate state office to reflect changes in membership. This may also involve filing an amendment to the Articles of Organization .

What must an LLC membership interest assignment contain?

A valid LLC membership interest assignment must contain at least the following mandatory clauses:

• Identification of involved parties : The LLC membership interest assignment will include details about the identity of both the party giving up their interest, as well as the party who will get the interest in the LLC.
• Description of membership interest : The LLC membership interest assignment includes details about the membership interest, including the percentage of the LLC and whether it includes voting rights.

In addition to the above mandatory clauses, the LLC membership interest assignment may also include the following optional clause:

• Consent requirement : If needed, this document includes an addendum at the end specifying that all the members of the LLC consent to the transfer of interest.

Which laws are applicable to an LLC membership interest assignment?

LLC Membership Interest Assignments are subject to the laws of individual states . There is no one federal law covering these documents because each individual state governs the businesses formed within that state.

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Assignment of LLC Interest

An Assignment of LLC Interest is a document through which an LLC member can transfer their ownership rights.

• About document

Related documents

How it works.

If an LLC member wishes to transfer their ownership rights to a different entity for any reason, they'll need to submit an Assignment of LLC Interest. This document will be a way for the member to communicate this intention to other LLC members.

What Is an Assignment of LLC Interest?

You can use an Assignment of LLC Interest in situations where an LLC member wishes to secure a loan, settle a debt, or leave their LLC. 

In such cases, this document will serve to transfer the member's interest – which can be done wholly or partially – according to state laws and the governing documents of the LLC in question.

Other Names for Assignment of LLC Interest

Since the document's content takes precedence over the title, an Assignment of LLC Interest doesn't necessarily have to bear that name. It's also called:

• Assignment Agreement
• Transfer Agreement
• Interest Transfer Agreement

Who Needs an Assignment of LLC Interest?

LLC members may decide to assign their interest for several reasons. One of the more common reasons for assignment is providing collateral for a loan.

Another reason might be if the member needs to settle a debt, in which case the assignment remains effective while the debt is present.

Finally, a member can assign interest to their legal heirs. In this case, the assignment becomes valid upon the member's death.

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How to Create an Assignment of LLC Interest With 360 Legal Forms

An Assignment of LLC Interest should clearly outline the rights and limitations as they apply both to the assignor, i.e., the LLC member transferring interest, and the assignee, i.e., the party receiving interest. For this reason, the document should be detailed and carefully crafted. State laws can potentially restrict assignments, and documents contrary to those laws can be subject to invalidation.

Let 360 Legal Forms help with our extensive library of attorney-vetted legal forms. The process is fast and easy. All you need to do is fill out our easy-to-understand questionnaire. Once complete, simply download your form as a PDF or Word document from your secure online account.

What Information Will I Need to Create My Assignment of LLC Interest?

To create your document, please provide:

• Assignor Information: Details on the LLC member transferring interest 
• Assignee Information: Details on the entity receiving interest
• Assignment Type: Description of whether the assignment is partial or full 
• Type of Partial Assignment (If Applicable): Determining whether the assignor will transfer a portion of ownership or specific rights and responsibilities
• Signatures : All involved parties need to sign the document to make it legally binding 

Assignment of LLC Interest Terms

• Assignor : The LLC member assigning their rights, responsibilities, and interest
• Assignee: The individual or other entity receiving the rights, obligations, and interest from the Assignor
• Authority : A confirmation that the agreement is following regulations affecting all parties (Assignor and Assignee)
• Severability : If you can't execute any individual part of the agreement, the rest of the agreement will remain valid

Assignment of LLC Interest Signing Requirements

An Assignment of LLC Interest is a legally binding document, which means all parties should ensure they understand and agree to all terms within it before signing. 

Once the Assignor and Assignee confirm that all information in the document is correct, both parties will need to sign the document to make it valid.

What to Do With Your Assignment of LLC Interest?

An Assignment of LLC Interest defines the scope of interest an LLC member will transfer to another party for other members of the LLC. 

After signing the document, you will execute the interest transfer. Both parties should keep their copies of this document for the record.

Frequently Asked Questions

LLC members often have two roles within the LLC: as interest owners and managers. When a member decides to assign interest to another party, the transfer won't affect that member's management role. 

Should an LLC member wish to leave the LLC management, they'll need to resign from that role in an action separate from the interest transfer. At that point, they’ll determine their replacement in the management following the LLC operating agreement and the state laws.

An LLC member can transfer their interest fully or partially. Full transfer means that the Assignee receives interest identical to that previously held by the Assignor.

In the case of a partial transfer, an LLC member will assign either a portion of their interest or only certain rights to the Assignee. 

In most states, the Assignee won't have the right to participate in the operations of the LLC in question. The Assignee is also protected from the Assignor's liabilities, but this may vary according to the state. For example, the Assignee receives the liability in Florida and California.

If the Assignee is introduced into the LLC as a member following the transfer, the Assignee's limitations and rights will be the same as the Assignor's. 

Most states will not prohibit any LLC members from assigning interest. Likewise, in most states, interest transfer won't mean that the Assignor relinquishes their right to vote or continue their involvement in LLC management. 

Texas is an exception since that state's law mandates that the Assignor must forfeit their LLC membership upon transfer.

Notifying all LLC members of an assignment is mandatory, and in some states, you can only enforce the document upon approval by all LLC members. 

LLC members can decide whether the Assignee will become a member if the Assignor wishes to resign their position. The interest transfer doesn't guarantee that the Assignee will automatically become an LLC member.

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Assignment of Membership Interest: The Ultimate Guide for Your LLC

LegalGPS : July 24, 2024 at 12:10 PM

As a business owner, there may come a time when you need to transfer ownership of your company or acquire additional members. In these situations, an assignment of membership interest is a critical step in the process. This blog post aims to provide you with a comprehensive guide on everything you need to know about the assignment of membership interest and how to navigate the procedure efficiently. So, let's dive into the world of LLC membership interest transfers and learn how to secure your business!

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Assignment of Membership Interest Template

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Table of Contents

Necessary approvals and consent, impact on ownership, voting, and profit rights, complete assignment, partial assignment.

• Key elements to include

Step 1: Gather Relevant Information

Step 2: review the llc's operating agreement, step 3: obtain necessary approvals and consents, step 4: outline the membership interest being transferred, step 5: determine the effective date of the assignment, step 6: specify conditions and representations, step 7: address tax and liability issues, step 8: draft the entire agreement and governing law clauses, step 9: review and sign the assignment agreement.

• Advantages of using a professionally-created template
• How our contract templates stand out from the rest

Frequently Asked Questions (FAQs) about Assignment of Membership Interest

Do you need a lawyer for this, what is an assignment of membership interest.

An assignment of membership interest is a document that allows a member of an LLC to transfer their ownership share in the company to another person or entity. This can be done in the form of a sale or gift, which are two different scenarios that generally require different types of paperwork. An assignment is typically signed by the parties involved and delivered to the Secretary of State's office for filing. However, this process can vary depending on where you live and whether your LLC has members other than yourself as well as additional documents required by state law.

Before initiating the assignment process, it's essential to review the operating agreement of your LLC, as it may contain specific guidelines on how to assign membership interests.

Often, these agreements require the express consent of the other LLC members before any assignment can take place. To avoid any potential disputes down the line, always seek the required approvals before moving forward with the assignment process.

It's essential to understand that assigning membership interests can affect various aspects of the LLC, including ownership, voting rights, and profit distribution. A complete assignment transfers all ownership rights and obligations to the new member, effectively removing the original member from the LLC. For example, if a member assigns his or her interest, the new member inherits all ownership rights and obligations associated with that interest. This includes any contractual obligations that may be attached to the membership interest (e.g., a mortgage). If there is no assignment of interests clause in your operating agreement, then you will need to get approval from all other members for an assignment to take place.

On the other hand, a partial assignment permits the original member to retain some ownership rights while transferring a portion of their interest to another party. To avoid unintended consequences, it's crucial to clearly define the rights and responsibilities of each party during the assignment process.

Types of Membership Interest Transfers

Membership interest transfers can be either complete or partial, depending on the desired outcome. Understanding the differences between these two types of transfers is crucial in making informed decisions about your LLC.

A complete assignment occurs when a member transfers their entire interest in the LLC to another party, effectively relinquishing all ownership rights and obligations. This type of transfer is often used when a member exits the business or when a new individual or entity acquires the LLC.

For example, a member may sell their interest to another party that is interested in purchasing their share of the business. Complete assignment is also used when an individual or entity wants to purchase all of the interests in an LLC. In this case, the seller must receive unanimous approval from the other members before they can transfer their entire interest.

Unlike a complete assignment, a partial assignment involves transferring only a portion of a member's interest to another party. This type of assignment enables the member to retain some ownership in the business, sharing rights, and responsibilities proportionately with the new assignee. Partial assignments are often used when adding new members to an LLC or when existing members need to redistribute their interests.

A common real-world example is when a member receives an offer from another company to purchase their interest in the LLC. They might want to keep some ownership so that they can continue to receive profits from the business, but they also may want out of some of the responsibilities. By transferring only a partial interest in their membership share, both parties can benefit: The seller receives a lump sum payment for their share of the LLC and is no longer liable for certain financial obligations or other tasks.

How to Draft an Assignment of Membership Interest Agreement

A well-drafted assignment of membership interest agreement can help ensure a smooth and legally compliant transfer process. Here is a breakdown of the key elements to include in your agreement, followed by a step-by-step guide on drafting the document.

Key elements to include:

The names of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name of your LLC and the state where it was formed

A description of the membership interest being transferred (percentage, rights, and obligations)

Any required approvals or consents from other LLC members

Effective date of the assignment

Signatures of all parties involved, including any relevant witnesses or notary public

Before you begin drafting the agreement, gather all pertinent data about the parties involved and the membership interest being transferred. You'll need information such as:

The names and contact information of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name and formation details of your LLC, including the state where it was registered

The percentage and value of the membership interest being transferred

Any specific rights and obligations associated with the membership interest

Examine your LLC's operating agreement to ensure you adhere to any predetermined guidelines on assigning membership interests. The operating agreement may outline specific procedures, required approvals, or additional documentation necessary to complete the assignment process.

If your LLC doesn't have an operating agreement or if it's silent on this matter, follow your state's default LLC rules and regulations.

Before drafting the assignment agreement, obtain any necessary approvals or consents from other LLC members as required by the operating agreement or state law. You may need to hold a members' meeting to discuss the proposed assignment and document members' consent in the form of a written resolution.

Detail the membership interest being transferred in the Assignment of Membership Interest Agreement. Specify whether the transfer is complete or partial, and include:

The percentage of ownership interest being assigned

Allocated profits and losses, if applicable

Voting rights associated with the transferred interest

The assignor's rights and obligations that are being transferred and retained

Any capital contribution requirements

Set an effective date for the assignment, which is when the rights and obligations associated with the membership interest will transfer from the assignor to the assignee.

This date is crucial for legal and tax purposes and helps both parties plan for the transition. If you don’t specify an effective date in the assignment agreement, your state's law may determine when the transfer takes effect.

In the agreement, outline any conditions that must be met before the assignment becomes effective. These could include obtaining certain regulatory approvals, fulfilling specific obligations, or making required capital contributions.

Additionally, you may include representations from the assignor attesting that they have the legal authority to execute the assignment. Doing this is important because it can prevent a third party from challenging the assignment on grounds of lack of authority. If the assignor is an LLC or corporation, be sure to specify that it must be in good standing with all necessary state and federal regulatory agencies.

Clearly state that the assignee will assume responsibility for any taxes, liabilities, and obligations attributable to the membership interest being transferred from the effective date of the assignment. You may also include indemnification provisions that protect each party from any potential claims arising from the other party's actions.

For example, you can include a provision that provides the assignor with protection against any claims arising from the transfer of membership interests. This is especially important if your LLC has been sued by a member, visitor, or third party while it was operating under its current management structure.

In the closing sections of the assignment agreement, include clauses stating that the agreement represents the entire understanding between the parties concerning the assignment and supersedes any previous agreements or negotiations. Specify that any modifications to the agreement must be made in writing and signed by both parties. Finally, identify the governing law that will apply to the agreement, which is generally the state law where your LLC is registered.

This would look like this:

Once you've drafted the Assignment of Membership Interest Agreement, ensure that all parties carefully review the document to verify its accuracy and completeness. Request a legal review by an attorney, if necessary. Gather the assignor, assignee, and any necessary witnesses or notary public to sign the agreement, making it legally binding.

Sometimes the assignor and assignee will sign the document at different times. If this is the case, then you should specify when each party must sign in your Assignment Agreement.

Importance of a Professionally-drafted Contract Template

To ensure a smooth and error-free assignment process, it's highly recommended to use a professionally-drafted contract template. While DIY options might seem tempting, utilizing an expertly-crafted template provides several distinct advantages.

Advantages of using a professionally-created template:

Accuracy and Compliance: Professionally-drafted templates are designed with state-specific regulations in mind, ensuring that your agreement complies with all necessary legal requirements.

Time and Cost Savings: With a pre-written template, you save valuable time and resources that can be better spent growing your business.

Reduced Legal Risk: Legal templates created by experienced professionals significantly reduce the likelihood of errors and omissions that could lead to disputes or litigations down the road.

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How our contract templates stand out from the rest:

We understand the unique needs of entrepreneurs and business owners. Our contract templates are designed to provide a straightforward, user-friendly experience that empowers you with the knowledge and tools you need to navigate complex legal processes with ease. By choosing our Assignment of Membership Interest Agreement template, you can rest assured that your business is in safe hands. Click here to get started!

As you embark on the journey of assigning membership interest in your LLC, here are some frequently asked questions to help address any concerns you may have:

Is an assignment of membership interest the same as a sale of an LLC? No. While both processes involve transferring interests or assets, a sale of an LLC typically entails the sale of the entire business, whereas an assignment of membership interest relates to the transfer of some or all membership interests between parties.

Do I need an attorney to help draft my assignment of membership interest agreement? While not mandatory, seeking legal advice ensures that your agreement complies with all relevant regulations, minimizing potential legal risks. If you prefer a more cost-effective solution, consider using a professionally-drafted contract template like the ones we offer at [Your Company Name].

Can I assign my membership interest without the approval of other LLC members? This depends on your LLC's operating agreement and state laws. It's essential to review these regulations and obtain any necessary approvals or consents before proceeding with the assignment process.

The biggest question now is, "Do you need a lawyer for your business?” For most businesses and in most cases, you don't need a lawyer to start your business. Instead, many business owners rely on Legal GPS Pro to help with legal issues. Legal GPS Pro is your All-In-One Legal Toolkit for Businesses. Developed by top startup attorneys, Pro gives you access to 100+ expertly crafted templates including operating agreements, NDAs, and service agreements, and an interactive platform. All designed to protect your company and set it up for lasting success.

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Operating Agreement Controls Over Revocable Trust in Estate Battle Over Ownership Interest in Limited Liability Company

• January 30, 2015

Jason L. Odom

If you specify a transfer of llc membership interest upon death but promise the same property to someone else in your revocable trust, who wins.

In the case of Blechman v. Estate of Blechman , Bertram Blechman and his sister formed Laura Investments, LLC, a limited liability company. Upon forming the company, Bertram and his sister executed an operating agreement which outlines the business’s basic structure and gave each of them—as an owner—a 50% “Membership Interest” in the company. As defined by the agreement, this “interest” consisted of the “rights to distributions, allocations and information, and the right to vote on matters coming before the Members.”

In addition to providing a managerial framework, the agreement imposed restrictions upon each Member’s ability to convey his interest in the company. In the case of death of a Member, the agreement provided that, unless (i) a Member shall transfer all or a portion of his LLC Membership Interest to a member of his immediate family, (ii) a Member bequeaths the Membership Interest in the Member’s last will and testament to members of the immediate family of the Member, or (iii) all such Membership Interest of a deceased Member are inherited by members of the Member’s immediate family, the LLC Membership Interest shall pass to and immediately vest in the deceased Member’s then living children.

The Bertram Blechman Revocable Living Trust

On December 12, 2000, Bertram executed his last will and testament and The Bertram Blechman Revocable Living Trust. Neither the will, nor the trust, contained any provision relating to Bertram’s 50% ownership interest in the LLC. However, on August 20, 2010, Bertram amended his trust to provide a “specific gift” of his residence and one half of the distributions from the LLC, to a trustee for the benefit of Arlene Roogow—Bertram’s girlfriend since 2003. The trust also required the Estate to pay the expenses associated with maintenance of the home.

Bertram’s Revocable Trust Provision is Nullified

On February 25, 2011, Bertram died. Predictably, Ms. Roogow asked the probate court to award her the residence and to transfer the LLC’s distributions from the Estate account to her own account to pay her expenses associated with the residence, pursuant to the 2010 trust amendment. Bertram’s children, however, took the position that the LLC membership and its distributions were not an estate asset, because upon Bertram’s death his 50% interest in the LLC immediately vested in them, as his children. Ms. Roogow countered that the specific devise in the 2010 trust amendment controlled, and she was therefore entitled to the distributions. The probate court sided with Ms. Roogow and held that the LLC was an estate asset, and as a result, Ms. Roogow was entitled to receive one-half of the distributions from the LLC. The children appealed.

The Florida Fourth District Court of Appeal disagreed with the probate court and reversed. The appellate court held that under Florida law the express language in contracts addressing the disposition of property trumps contrary language in a testamentary instrument, such as a will or trust. In other words, Bertram’s revocable trust provision is nullified to the extent it is contradicted by the LLC’s contractual provisions. The appellate court noted that the express language of the operating agreement provided that, unless the Member’s Interest was transferred or bequeathed to a member of his or her immediate family, the Interest would immediately vest in the Member’s children upon death of the Member. In this case, because Ms. Roogow was not a member of Bertram’s immediate family, Bertram’s 50% interest in the LLC immediately vested in his children upon his death. Furthermore, because Bertram’s 50% interest in the LLC immediately vested in his children, the LLC and distributions from the LLC membership were not a probate asset, which meant the distributions could not be used to pay Estate expenses, such as for the upkeep on the residence that was provided to Ms. Roogow.

The Importance of Proper and Thorough Estate Planning

This case highlights the importance of good, and thorough, estate planning in order to effectuate the client’s intent and avoid litigation. The operating agreement spelled out precisely how a Member could transfer their interest at death; however, for unknown reasons it was obviously not taken into consideration when Bertram amended his trust in 2010. While it seems pretty clear that Bertram intended to provide for Ms. Roogow on his death, he chose the wrong way to go about doing that, which unfortunately resulted in his intent not being carried out.

If you have questions about your revocable trust, or anything to do with Estate Planning, give our experienced attorneys a call to schedule a private consultation .

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Should your revocable trust own your LLC?

An llc interest held outside of a trust is considered personal property and subject to probate upon the owner's death..

If a trust is part of your estate plan, it is probably your intention that the trust would own all of your major personal property so as to avoid the pain, cost and delays of probate. With a properly funded trust (see our October 2023 article ), avoiding probate is a reasonable expectation.

However, it’s not uncommon for some trust makers to overlook one important asset: their ownership interest in a limited liability company (LLC).

In Arizona and most other states, an LLC ownership stake is considered personal property. As a consequence, if at the time of your death you personally own all or part of an LLC – i.e., you did not convey your LLC ownership to your trust – the transfer of your ownership would probably have to go through probate.

You can spare your successor trustee that pain, and spare your estate the cost of probate, by transferring your LLC interests to your trust. Doing so can help you achieve your major estate planning objectives and pave the way for a smooth and hassle-free transition of your LLC to your beneficiaries.

Here are common steps for conveying your LLC ownership to your trust:

• Be sure that your LLC’s operating agreement allows you to transfer your interest to a trust. If it does not, you will need to amend it, though most operating agreements include exceptions that allow for the transfer of membership interests to revocable trusts for estate planning purposes.
• If your operating agreement sets forth any specific requirements for transferring your interest, follow them.
• If your LLC ownership predates the creation of your trust, your trust agreement should include an “assignment of interest” from you to the trust.
• Conveying your LLC ownership to your trust might require you to amend your Articles of Organization and/or other records on file with the Arizona Corporation Commission or the appropriate governing agency in your state.
• If you form the LLC or acquire an LLC interest after you set up your trust, your trust should be named as the owner of your membership interests ab initio ("from the beginning").

If your interest is in a multi-member LLC, your transfer may need to be approved by the other members, particularly if your operating agreement has any restrictions regarding transfers of ownership. Approval might be in the form of a signed resolution that acknowledges and accepts the transfer of your LLC interest to your trust.

While acknowledging the advantages (described above) to having a trust-owned LLC, it is important that you carefully evaluate the operating agreement and any buy-sell agreements and transfer restrictions to avoid unforeseen consequences. Working with a knowledgeable attorney can help you navigate this process and make informed decisions for your business.

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How to Transfer Ownership of an LLC into a Trust

Asset Protection Strategies

Under Colorado/Wyoming law, an LLC interest is treated as personal property. Any personal property that you own, as opposed to your trust, at the time of your death will have to go through probate. Therefore, if you own an LLC or an interest in an LLC personally, e.g., it has not been transferred into your trust, it will have to go through probate which can cost a great amount of money, take time, and can delay the transfer of your LLC interests. However, you can transfer your LLC interest(s) to your trust just like you would transfer other personal property.

Avoiding Legal Pitfalls When Transferring LLC Interest to a Trust

Before attempting to transfer any interest in the LLC, make sure you or your attorney thoroughly review the LLC’s Operating Agreement to ensure that you are permitted to transfer (or assign) your LLC interest. Violating any transfer provisions can cause your trust beneficiaries to have unrealistic expectations as the intended transfer will more than likely have been ineffective and your trust will not actually own your LLC interest. As you can imagine, this can cause your beneficiaries great frustration and lead to litigation. If your Operating Agreement does allow for transfer, but it places limitations or requires explicit procedures be followed to do so, make sure you follow these provisions to ensure the LLC interest transfer is effective.

Steps to Finalize Your LLC Transfer

Assuming your Operating Agreement allows you to transfer your interest, you will prepare and sign an assignment of your LLC interest to your trust. You will also sign this same document accepting the interest of the LLC as you will be the Trustee of your Trust.

Next, you will need to draft and file an Amendment to your Articles of Organization with the Wyoming/Colorado Secretary of State. If the LLC is member managed, then you will also need to file an amendment to the Articles to update the member of the LLC as prior to the transfer you as an individual would have been named, but after the transfer, the trust, not you as an individual, will be listed as the member. If the LLC is manager managed, you will need to file an amendment with the Colorado/Wyoming Secretary of State if your trust owns 20% or more of the LLC.

It would be ideal to amend the Operating Agreement to reflect the transfer of ownership from you to your trust, although it is not required. Of course, the practicability of doing so depends on the number of members of the LLC and the terms of the then existing Operating Agreement. Additionally, while it’s not required, it would also be a good idea to have the LLC members sign a resolution acknowledging and accepting the transfer of your LLC interest to your trust in order to avoid any future conflict, confusion, and possible litigation. By doing so, any issues within the Operating Agreement that may affect the validity of making this transfer can be dealt with now proactively rather than waiting for a problem to arise after you’ve passed.

Why Consult a Business Attorney for LLC Transfers

Transferring the ownership of your LLC into a trust is an essential step to ensure your assets are protected and avoid the complications of probate. By following the necessary steps and adhering to your LLC's Operating Agreement, you can successfully transfer your interest to your trust. To ensure everything is done correctly and to avoid any legal pitfalls, we recommend speaking with your business attorney. This will provide peace of mind and secure your assets for your beneficiaries.

RELATED TOPICS

Can a revocable trust be a sole member of an LLC?

To pass your property on to beneficiaries cost-effectively when you die, consider combining a revocable trust with an LLC. It's surprisingly simple.

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Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

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Updated on: March 21, 2024 · 3 min read

Can a trust be a member of an LLC?

What is a revocable trust, advantages of revocable trust as sole member of an llc, disadvantages of revocable trust as sole member of an llc.

If you have real estate or other valuable property that you'd like to pass on to your children or other heirs after you pass away, you've probably been exploring a number of estate planning options and strategies to find the most efficient, cost-effective method of doing so.

One strategy that can combine limited liability with probate benefits is to use an LLC , or limited liability company, in conjunction with a revocable living trust.

With this strategy, you create an LLC, which will hold title to the property you wish to pass on to your beneficiaries on your death. The interest in this LLC is then held by a revocable trust. Note that you are not creating a trust LLC or an LLC trust—the strategy involves a revocable trust that holds sole ownership interest in an LLC , which in turn holds title to the property.

You may be wondering if it's possible for a trust to be a member of an LLC or even the sole member of a single-member LLC. The answer is yes.

First, trust law permits trustees—who are acting on behalf of trusts, including revocable trusts—to own any asset, or almost any asset, that an individual can own, and this includes an interest in an LLC, which qualifies as an asset.

Second, LLCs are creatures of state law, and most states permit several different types of entities, including trusts, to hold an ownership interest in an LLC; this also applies with a single-member LLC, where a trust can be the sole member.

A revocable trust is a living trust that can be terminated at any time by the grantor, that is, the person who created the trust. The grantor may withdraw assets from the trust, and the assets can be managed for the benefit of the grantor.

On the death of the grantor, the assets of the trust may be distributed to the beneficiaries, or the trust might be continued, with the trust assets managed and payments continued to the trust's beneficiaries; the terms of the trust document will dictate the events occurring after the grantor's death.

There are a number of advantages to having a revocable trust be the sole member of an LLC holding the property you wish to pass on.

First, on its own, an LLC affords its owner's limited liability.

Let's say, for example, your LLC has the title to rental property. A rental property can attract lawsuits for injuries incurred while on the property; with the rental property placed within the LLC, however, liability is limited and only the other LLC assets are exposed. Placing the property within the LLC, therefore, offers a layer of protection to other assets owned by the revocable trust.

Second, on its own, a revocable trust permits easier distribution of property on the grantor's death—without having to go through the costs associated with probate.

Combining an LLC with a revocable trust provides you with the separate advantages of the limited liability afforded by an LLC, plus the estate planning benefits of avoiding probate offered by the use of a revocable trust. Having a revocable trust be a sole member of an LLC in this way gives you access to a benefit combination that neither entity provides alone.

There may also be disadvantages to using this strategy. Cost is one.

It is likely that you will initially form an LLC in order to implement this strategy. LLC formation, while not complicated, does give rise to a number of costs, both initially and the costs associated with annual maintenance, such as renewal fees. There also are a number of costs associated with setting up and maintaining a revocable trust.

If your revocable trust owns properties subject to significant risk, such as the rental property described in the example above—and you want to protect the rest of your revocable trust assets from liability risk while maintaining the probate advantages of a trust for that particular property—combining a revocable trust with an LLC is one option to explore.

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