Orange County Probate and Estate Planning Blog

Do I Need a Trust and an LLC?

Posted by Charles Kausen | Apr 25, 2024 | 0 Comments

So you have an estate plan consisting of a will and trust.  Are you done?  Maybe not.  For many clients, a California Limited Liability Company can help add important protections for an estate that goes beyond a California Trust.


What are the Estate Planning Benefits of a California LLC?

As the name suggests, a limited liability company can limit liability for its members.  There are exceptions, but if the LLC follows some basic rules, only the LLC's assets are on the line if thing go wrong.  This means that a member's personal assets, that are kept separate from the LLC, are not at risk of satisfying a judgment or loss.  This protection ensures that those you leave behind are actually able to enjoy the fruits of your labor.

Another benefit is that, unlike some other legal entities like a C-Corp, members of an LLC enjoy pass through taxation.  This means that there is not a "double" tax, where the entity is first taxed, then distributions to owners are taxed again.  Instead, the income of the LLC passes through and is put directly on the member's individual income tax return.  Avoiding unnecessary taxes and complexity means you are not leaving a tangled web for your loved ones to deal with.

Additionally, using an LLC as part of an estate plan increases the level of control for the owner and can even help shift assets from an owner's estate before they pass away.  This could result in huge tax savings for high net worth estates, especially with the estate tax exclusion amount potentially dropping soon.


I already have a trust.  Why would I need an LLC?

A revocable living trust is great at avoiding probate, but it does not do much to protect from creditors.  An asset held in a California revocable trust can be attached almost as easily as any asset held in the trust creator's individual capacity.  Instead, an LLC can help isolate certain assets.  This means that a creditor of an LLC can only satisfy their claim against the LLC's assets, not all trust property.

As an example, let's say a trust holds a rental property.  Without an LLC or other entity, someone that gets hurt at the rental property could satisfy any resulting claim against all assets owned by the property owners, even those held in a revocable trust.  An LLC helps isolate the trust and the other assets from such liability, meaning the LLC is liable only up to what it actually owns.

Can my trust own my California LLC?

Yes!  In the operating agreement of your California LLC, you can specify that your revocable trust is the member.  You can then include distribution provisions in your trust specifying who should become the member when you pass away. 

What is the downside of a California LLC?

An LLC is not without its shortcomings.  First, LLCs in California have to pay a minimum annual tax of $800.  This tax is due even if your LLC does not actually conduct any bustiness.  California LLCs also have to pay additional fees if their annual income is over $250,000. 

Next, California LLCs also have to file a Statement of Information (Form LLC-12) with the secretary of state within the first 90 days of registering and every two years thereafter.  The Statement of Information also requires a filing fee, but it mainly requests basic information about who manages the LLC, the address for the business, and the agent for service of process.

Finally, an LLC can make transferring the LLC's property more cumbersome.  Depending on the LLC's operating agreement, the manager of an LLC may be required to get approval from the LLC's members before selling property.  Also, many lenders hesitate or refuse to lend to an LLC, meaning property owned by an LLC may be harder to use as collateral for a loan.

If you need additional assistance planning your estate, setting up a California LLC, or just have questions, the attorneys at Finlay Law Group, APC are here to help.

Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein. 

About the Author

Charles Kausen

Charles "Charley" Kausen graduated summa cum laude from the University of San Diego School of Law in 2022 after earning a psychology degree from University of California at Santa Barbara in 2012. During law school, Charley was an extern for Judge Janis Sammartino of the United States District Cou...


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