We have a family living trust and a LLC. Please comment on what is more efficient and best for asset protection and estate planning: include the LLC as an asset of the trust (along with realestate properties and bank accounts) or make the living trust a member/ owner of the LLC (this way does not have to be included as asset).
Elder Law Attorney
The two scenarios you present are the same: "include the LLC as an asset of the trust" means that the trustee will be the member/owner of the LLC. A big advantage of having the trustee of the trust own the LLC is that the LLC will not be a probate asset - ownership will pass pursuant to the terms of the trust. As far as asset protection goes, a trust does not shield the assets from creditors, although it may make them a little harder to find.
This information is not intended, and should not be construed, as legal advice. I encourage those with questions to consult an attorney of their choice for guidance.
This isn't the type of question that should be answered here. You obviously had an attorney draft your living trust, so you need to discuss with that attorney. The answer depends entirely on what is the purpose of the LLC and the Living Trust for you and what are the terms of the trust agreement.
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In order to give an accurate answer, I would need to take a closer look at how the Living Trust is drafted. However I can state that generally, a Living Trust is a good legal tool for estate planning (inheritance / probate) purposes but NOT for asset protection purposes as it will not protect you from potential creditors.
An LLC is an efficient legal tool to hold investment properties. In theory, it should protect you from liabilities. However in practice, a plaintiff may try to pierce the corporate veil by holding you directly liable by theories such as negligence or gross negligence.
Therefore, I recommend you to put the sole proprietorship (or your share) of the LLC in an entity that is specifically designed for asset protection purposes, such as an asset management limited partnership that is filed in a state with strong charging order rules and a legislative history as AZ. This asset managent limited partnership of which you and your spouse can be both 50% partners can also hold directly your liquid assets such as bank and brokerage accounts.
If the total net worth you seek to protect is over the 400/500k benchmark, my advice is to consider an exit strategy that allows you, if necessary, to take your assets out of reach of US courts without compromizing ownership or control.
Depending on how it is drafted, your exisiting trust may be updated according to the set up of your new asset protectiong planning. This way it would be come an efficient estate planning complement of your asset protection plan.
You definitely need to seek advice with an asset protection planning attorney.
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A Living Trust provides just about zero asset protection. That is not what it is designed to do. Although Living Trusts (Revocable Trusts) are a good estate planning tool for some estates, they are not a one-size-fits-all solution. They are not as important a tool for avoiding probate in Texas as they are in other states because Texas probate is relatively simple and inexpensive with a properly drafted Will.
DISCLAIMER: This is not specific legal advice and does not establish an attorney/client relationship.
Hopefully you sough the advice of an attorney in drafting your living trust. If so, speak with him or her. Recent case law involving single member LLCs and bankruptcy call into question whether single member LLCs offer much asset protection planning.
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