Using Irrevocable Trust to Create Multi-Member LLC

Most people who contact me to assist in drafting LLC operating agreements for asset protection know that only multi-member LLCs have asset protection benefits for Florida residents. Many clients want to know about options to add a second member to an LLC that is essentially the client’s own business or investments.

When a client has no participating partners in a business it is difficult to find the second member to his business LLC. One of my clients considered making his parents a minority partner in his LLC business but was concerned about his parents having title to the LLC interest. Specifically, the client did not want to expose interests in his business to the parents’ creditors or to probate upon his parents’ deaths. Also, he did not want his parents’ estate plan to devise any interests to his siblings.

The solution we agreed upon was to have his parents set up an irrevocable trust for the client’s benefit and for his parents to title a minority share of the LLC in the parents’ trust. The spendthrift provision in the trust agreement would protect the LLC interests during his parents’ lifetimes. Upon his parents death the share would be held in continuing trust for the client’s benefit thereby maintaining the LLC’s second member even after the parents’ death. The parents’ LLC interest will not be part of a probate and will not be shared among other heirs as the trust agreement will preserve the LLC interests for the client’s benefit.

Last updated on May 22, 2020