- Hey guys, in this video,
we're gonna talk about setting up your LLC
when you have a living trust.
All right, let's get started.
(upbeat music)
Right now, I work with a lot of people who come to us,
and they wanna set up limited liability companies,
of course, to own their rental real estate,
and they have a living trust, and they've been told,
"Hey, everything's supposed to go into my living trust."
And that's true.
So, if you have a living trust,
that you've set up for your estate plan,
if you don't know what it is,
be sure to watch one of my other videos,
I talk about the benefits of having a living trust
and what it can do for you by avoiding probate.
So, you've set up your living trust,
and you're gonna be told,
"You have to put all of your assets into this."
That means your limited liability companies
that you've set up would go inside of there.
Maybe you have another business over here
would go inside of there.
So you got these LLCs, and,
when I say, you put your LLCs into your living trust,
what that means is that you're making the living trust
the member of that limited liability company.
So, when LLCs get filed,
if the state asks for who is the member,
and you have to report it to the Secretary of State
on that LLC filing, and you have a living trust,
and you wanna make the living trust the member,
you may be inclined
to put down the name of your living trust on that filing.
More importantly,
what I see people do is
when they draft their Operating Agreement.
So they've set up an LLC,
you put together your LLC Operating Agreement,
maybe you're listed as the manager,
and then you list your living trust
as the member of that LLC.
So, why do people do this?
Well, they want to ensure that their trust owns the LLC,
so they can avoid probate.
However, here's something you should consider.
When you're setting up an LLC,
even though you have an existing living trust,
if it's your trust, list yourself as the member of the LLC.
Do not put your living trust as the initial member
on any filings that are submitted to the state
or on your Operating Agreement.
Just have your Operating Agreement drafted,
so it looks like this.
I've set up an LLC here.
Here's an LLC, Clint is manager.
Clint is member of this limited liability company,
so I'm listed on the Operating Agreement in both positions.
Now, why am I telling you to do that?
Because, you may be thinkin' well, Clint, if I did that,
well, then my living trust doesn't own it,
so, if I pass away, that won't be included in this,
and this goes then has to go through probate,
attorneys get in there and make all their money.
Well, we're gonna put it in your living trust,
we're just not gonna do it directly.
And the reason being, is that,
let's assume with this limited liability company you have,
you're gonna open up a bank account, right, for it.
Say, it can be a Wyoming, LLC,
and you wanna open up a bank account,
and your bank asks for a copy of the Operating Agreement.
Okay, so you send them a copy of the Operating Agreement.
Let's say you did it the way I originally showed you.
You send 'em over a copy
of your LLC Operating Agreement here,
and when they get a copy of it, what are they gonna see?
You're the manager, and the living trust is the member,
so it's no longer you.
Now, this can create problems for you,
because, if you're trying to open your account online,
for example,
Chase allows you to open up an LLC account online,
provided these two parties are the same.
But, if you have this party here and this party here,
(makes buzzer sound) that creates an issue for you
tryin' to get that account opened online,
so now you have to actually go into the branch.
Then they wanna see a copy, as I stated,
of that Operating Agreement,
they see the living trust there.
Next question they're gonna ask for,
"Well, we need to evaluate your living trust,"
and so now you have to bring your living trust in
and give 'em a copy of your living trust to look at,
just to open an account.
So, if you're applying for a loan, same thing.
If you had an LLC
that shows that the living trust is the member,
and the lender asks for a copy
of the LLC Operating Agreement,
they see that that living trust is a member,
they're gonna ask for a copy of that living trust.
And they're gonna make sure there are provisions
in that living trust
that allow you to do what you wanna do,
buy that property and get a mortgage on there.
And maybe the attorney who drafted it
didn't have that type of specific language in there,
used a more general purpose clause about trustees powers,
now then, you gotta amend your living trust
to make the bank happy.
Don't do this.
This is a mistake that I think people make is,
that they try to,
inexperienced attorneys that do not deal with real estate
try to put it all together in a nice, neat little package,
not realizing what the problems are gonna be down the road.
So, the way I like to handle my structure,
is I will set up the LLC,
and, whatever LLC I'm setting up
will not contain my living trust as a member.
What I will do is, after I've set up the LLC,
I will then prepare an assignment.
I will prepare an assignment,
where I will transfer my LLC to the living trust,
so it's a separate one page document,
says I, Clint Coons, member in this LLC,
hereby assign and transfer 100% of my membership interest
to the living trust.
Now, when you do it this way,
that is not on the Operating Agreement.
Yes, your living trust owns it,
because you transferred your interest,
but, if anyone asks to see a copy
of your LLC Operating Agreement,
don't send them the assignment,
just send 'em the LLC Operating Agreement.
Do exactly what they're asking.
Now, if they make you sign a form
that states you're the actual member,
well, of course, you gotta problem here,
your living trust is the member,
and you're gonna have to figure that one out.
Do you say, "Yes, I'm the member,
"because I own it indirectly through this."
Or, if you're concerned about that,
that they may look at that as being fraudulent,
you don't wanna sign under penalties of perjury,
how do you change it?
Assign it back to yourself from your living trust,
just reverse the transaction, then you're the member.
But it's a heck of a lot easier,
than having to amend that LLC Operating Agreement
to get the living trust name off and put your name on.
So, a lot of things about putting together these structures
aren't necessarily obvious on their face,
and it comes from years of experience of doing this
and working with parties.
Because, I'll tell you what, I've made this mistake,
and I had to deal with the consequences of it
in dealing with the bank one time in opening up an account.
So, somethin' to consider when setting up your LLC is,
if you have an existing living trust,
try to avoid listing the living trust as its member.
Hey guys, if you liked this video,
hit the like button, and, of course,
be sure to subscribe to the channel.
Take care.
(upbeat music)