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Do You Trust Your LLC?

In these economic times, many people are forging into their own businesses and forming LLC's.  However, many people are forgetting to integrate their estate planning, specifically their revocable living trust, into their LLC.

The Arizona Corporation Commission requires a minimum to create an LLC; submit the requisite Articles of Organization, pay the filing fee and publish the Articles after being approved. This minimum does not protect you from having to seek court intervention if a Member of the LLC becomes incapacitated and does not avoid the need for probate if a Member dies.

If you have gone to the effort to have an estate plan, then be sure that your Member's interest is titled in your trust.  By having your Member's interest held in trust,  if you become ill, incapacitated or die, your Successor Trustee can act on your behalf and you can avoid court involvement in such a situation.

If the LLC is Manager managed, then the Manager should also be the Trustee of the trust. For example, the Member and the Manager should be listed as "Jane Doe as Trustee of the Doe Revocable Trust Dated February 3, 2008."  (The date the trust agreement was signed becomes part of the name of the trust.)

If a husband and wife own the Members' interest in their joint revocable trust, then the Members can be listed as the co-trustees of the trust holding the interest for the benefit of each Member.  For example:  "Jane Doe and John Doe as Co-Trustees of the Doe Revocable Trust Dated February 3, 2008, fbo Jane Doe; and Jane Doe and John Doe as Co-Trustees of the Doe Revocable Trust Dated February 3, 2008, fbo John Doe." The "fbo" designation is not necessary for the Manager and you can list the Managers as "Jane Doe and John Doe as Co-Trustees of the Doe Revocable Trust Dated February 3, 2008."

Operating Agreements, while not required, are very helpful when a trust is involved. The Operating Agreement can include definitions for a Member and for a Manager that direct the Successor Trustee, as appointed by the applicable trust agreement, to have all of the rights to act as the Member or the Manager, as the case may be.

If a Member or Manager has a durable power of attorney for finances, many businesses and  financial institutions will not allow the named agent to act for a Member or Manager who is incapacitated.  These same institutions have been responsive to successor Trustees when a trust is involved and the Operating Agreement directs that the Successor Trustee have the same rights as the Member or Manager.  Further, having the Member's interest held in trust is the only way to avoid probate if the Member's interest exceeds the amount allowable to pass without probate.