Trust Ownership of an LLC in Florida

A trust can own an LLC in Florida. When a trust holds a membership interest in an LLC, the trustee becomes a member of the LLC in their capacity as trustee, and the ownership interest is titled in the name of the trust rather than in the name of an individual. The structure is used for estate planning, asset protection, and business continuity, and it is one of the most common ways Florida business owners coordinate their LLC planning with their broader estate plan.

The mechanics are straightforward. The individual who currently holds a membership interest assigns that interest to the trustee of their trust. The assignment is documented through a written transfer agreement, and the LLC’s records and operating agreement are updated to reflect the trust as a member. From that point forward, the trustee exercises all membership rights on behalf of the trust, including voting, receiving distributions, and participating in management if the LLC is member-managed.

The trust agreement itself should contain provisions that address how the trustee will manage the LLC interest. It can authorize the trustee to continue operating the business, direct the trustee to sell the interest under specified circumstances, or give the trustee discretion to make those decisions based on the beneficiaries’ best interests. Without these provisions, the trustee may lack clear authority to act, which can create problems during a transition.

Revocable Trust Ownership

The most common structure involves a revocable living trust owning the LLC interest. A revocable trust allows the grantor to maintain full control during their lifetime while ensuring the LLC interest passes to beneficiaries outside of probate upon death.

For tax purposes, a revocable grantor trust is disregarded. The IRS treats the trust and the grantor as the same taxpayer, so transferring an LLC interest to a revocable trust does not trigger any income tax consequences. If the LLC was a single-member disregarded entity before the transfer, it remains a disregarded entity afterward. The grantor continues to report LLC income on their personal tax return, and no new EIN is required for the LLC.

The primary benefit of revocable trust ownership is probate avoidance. Without trust ownership, an LLC membership interest passes through the owner’s probate estate, which in Florida means court supervision, public disclosure, and delays that can disrupt business operations. When the trust owns the interest, the successor trustee steps in immediately upon the grantor’s death or incapacity and manages the LLC interest according to the trust’s terms.

Revocable trust ownership also provides continuity during incapacity. If the grantor becomes unable to manage their affairs, the successor trustee can exercise the membership rights without the need for a court-appointed guardian. For a business that requires active management, this seamless transition can be critical.

The limitation of a revocable trust is that it provides no asset protection during the grantor’s lifetime. Because the grantor retains the power to revoke or amend the trust, Florida courts treat the trust’s assets as the grantor’s own property for creditor purposes. A creditor with a judgment against the grantor can reach the LLC interest held in a revocable trust just as easily as if the grantor held the interest individually.

Irrevocable Trust Ownership

An irrevocable trust provides a different set of benefits. Because the grantor relinquishes control over assets transferred to an irrevocable trust, those assets are generally beyond the reach of the grantor’s personal creditors. An LLC interest held by an irrevocable trust is owned by the trust, not by the grantor, and a creditor holding a judgment against the grantor cannot simply seize the interest.

One common application of irrevocable trust ownership is converting a single-member LLC into a multi-member LLC for asset protection purposes. Under Florida law, multi-member LLCs receive full charging order protection, while single-member LLCs do not. By gifting a small percentage of the LLC interest to an irrevocable trust established for family members, the owner adds a second member without bringing in an outside business partner. The multi-member LLC article covers the requirements for this strategy in detail, including minimum ownership thresholds, fraudulent transfer considerations, and how to structure the trust to preserve charging order protection.

Operating Agreement Coordination

The LLC’s operating agreement must permit trust ownership and address how a trustee exercises membership rights. Many standard operating agreements are written with individual members in mind and do not contemplate trust ownership at all. Before transferring an LLC interest to a trust, the operating agreement should be reviewed and amended if necessary.

Key provisions include authorization for a trust to hold a membership interest, a process for the trustee to exercise voting and management rights, and rules for what happens if the trust terminates or the trustee changes. The agreement should also address whether a successor trustee automatically steps into the membership role or whether the other members must approve the new trustee.

For multi-member LLCs, the operating agreement may contain transfer restrictions that require the consent of other members before an interest can be assigned to a trust. These restrictions should be addressed before the transfer. In most cases, the other members will consent because the transfer does not change the economic arrangement or management structure.

The operating agreement should also specify how distributions to a trust-owned interest are handled. Distributions flow from the LLC to the trustee, who then manages them according to the trust’s terms. If the trust is revocable, the grantor typically receives the distributions directly. If the trust is irrevocable, the trustee holds or distributes the funds according to the trust agreement’s provisions.

Tenancy by the Entirety Considerations

Married couples in Florida often hold LLC interests as tenants by the entirety, which protects the interest from the individual creditors of either spouse. Transferring a TBE-held LLC interest into a trust raises a significant question: does the interest retain its entireties protection inside the trust?

Florida law on this point is unsettled. Federal bankruptcy courts in Florida have reached conflicting conclusions about whether assets held in a joint revocable trust retain tenancy by the entirety protection. Several other states have enacted statutes specifically addressing this issue, but Florida has not.

For married couples who want both probate avoidance and entireties protection, one common approach is to retain the LLC interest as tenants by the entirety during both spouses’ lifetimes and use a transfer-on-death provision in the operating agreement to direct the interest to the trust upon the death of the surviving spouse. This preserves the entireties protection during life while still avoiding probate at death.

Steps to Transfer an LLC Interest to a Trust

The transfer process involves several steps that should be completed in sequence to ensure the transfer is legally effective.

The first step is reviewing the operating agreement for transfer restrictions. If the agreement requires member consent, that consent should be obtained in writing before the transfer. If the agreement does not address trust transfers, it should be amended to authorize them.

The second step is preparing an assignment of membership interest. This document transfers the membership interest from the individual to the trustee of the trust. It should identify the LLC, the transferring member, the trust, the trustee, and the percentage of membership interest being transferred. Both the assignor and the trustee should sign the assignment.

The third step is updating the LLC’s internal records. The membership ledger, if one exists, should reflect the trust as a member. The operating agreement should be amended to list the trust as a member and to address trustee succession and management rights.

The fourth step is notifying relevant third parties. Banks that hold LLC accounts may need updated signature cards or documentation reflecting the trustee’s authority. If the LLC holds real estate, the change in membership may need to be reflected in the entity’s records (though the real estate title itself does not change because the LLC, not the individual, owns the property).

Tax considerations depend on the type of trust. For a revocable grantor trust, no new EIN is needed and no tax filings change. For an irrevocable trust that is also a grantor trust, the same generally applies. For an irrevocable non-grantor trust, the trust will need its own EIN, and the LLC may need to file as a partnership if the trust is treated as a separate taxpayer.