A revocable trust can generally own the membership interest in an LLC that holds rental property.
This structure allows the LLC and the trust to perform different but complementary jobs.
The LLC owns and operates the rental property. The revocable trust holds the owner’s interest in the LLC and provides instructions for what happens to that interest if the owner becomes incapacitated or dies.
The trust owns the LLC interest, not the rental property directly
Placing an LLC into a revocable trust ordinarily does not require transferring the rental property out of the LLC. The deed remains in the LLC’s name. Instead, the owner assigns the LLC membership interest to the trustee of the revocable trust.
That distinction matters because the ownership structure should remain clear:
- The LLC owns the real estate.
- The LLC enters leases, receives rent, maintains insurance, and pays property expenses.
- The revocable trust owns the membership interest in the LLC.
- The operating agreement determines who has authority to manage the LLC.
The assignment should be reflected in the LLC’s records and coordinated with its operating agreement. If the LLC has multiple members, the transfer may also require consent from the other members.
Trust ownership can improve incapacity and succession planning
When the LLC interest is properly held in the revocable trust, a successor trustee can act under the trust if the Settlor becomes incapacitated or dies. This may allow the family to continue managing the ownership interest without first transferring it through probate.
The successor trustee’s actual authority will still depend on the LLC’s operating agreement. In a manager-managed LLC, for example, ownership of the membership interest does not necessarily give the trustee responsibility for day-to-day property management.
This is why the trust, operating agreement, and management structure need to be reviewed together. The documents should identify who can vote the interest, appoint or replace a manager, approve a sale, receive distributions, and make other important decisions.
A revocable trust does not add asset protection
Holding an LLC interest in a revocable trust does not protect that interest from the Settlor’s personal creditors. As Jeff explains in Cardon Law’s advanced-planning material, a revocable trust is primarily a probate-avoidance, incapacity, and succession tool. Because the Settlor retains the power to revoke the trust and recover its assets, the trust generally does not provide asset protection for the Settlor.
The LLC may still help separate liabilities arising from the rental property from the owner’s other assets when it is properly structured and maintained. Trust ownership does not replace the LLC, liability insurance, appropriate leases, or responsible business practices.
Review the operating agreement before making the transfer
An LLC interest should not be assigned to a revocable trust without reviewing the governing documents and the surrounding ownership structure. Important considerations may include:
- Transfer restrictions in the operating agreement
- Consent requirements for other members
- Whether the trustee will receive full membership rights or only economic rights
- Existing loans, personal guarantees, and lender requirements
- Insurance and property-management arrangements
- Tax elections and reporting
- The authority granted to the successor trustee
The goal is not simply to place the LLC’s name on a trust schedule. The legal ownership, LLC records, trust provisions, and management authority should all describe the same arrangement.
