Should I Transfer Florida LLC Membership Interest to a Florida Trust?
Transferring Florida LLC Membership Interest
Florida LLC owners need to know how placing their company into the ownership of a revocable living trust can help protect their business’s succession and continuity in the event of death or incapacitation. Not accounting for this in an estate plan can be a major misstep, as interest in the company will be tied up in probate court before it can be passed on to any potential heirs. However, a Florida revocable living trust can help avoid these problems and more.
You may already know that trusts are a cornerstone of estate planning. Still, too many Florida LLC owners overlook how they can be used to ensure their business’s succession and survival should anything unfortunate happen.
What is a Trust?
There are many different kinds of trusts available to Florida LLC owners, but for the purposes of this article we’ll be focusing on revocable living trusts. This type of trust can be used as a way to transfer Florida LLC membership interest upon death or incapacitation while avoiding probate. It’s popular among many business owners because it can be changed and updated while the grantor is still alive.
What are the Benefits of Transferring a Florida LLC to a Trust?
Transferring a Florida LLC to a revocable living trust can be beneficial in three main ways:
- Probate Avoidance – Probate is an often expensive and time-consuming process that should be avoided when possible. Placing your Florida LLC into a trust can make that happen. This can be helpful for business owners, as the company could be left leaderless while the court settles the estate.
- Privacy – Probate is a matter of public record, which is another reason that it should be avoided by those with privacy concerns relating to their Florida businesses. If an LLC is owned by a trust, however, it will bypass probate, allowing succession to continue without privacy violations or delays from the court.
- Incapacity Planning – Deciding on what should happen with a Florida LLC if its owner or owners are incapacitated by illness or injury, whether permanently or otherwise, is just as vital to the future of the business as planning for their passing. A revocable living trust trust can help by, for example, creating procedures for a substitute to step in during their absence.
How Do I Transfer Florida Membership Interest to a Trust?
- Review and Amend the Florida LLC’s Operating Agreement
If a Florida LLC has an operating agreement (and it absolutely should), then it must first be reviewed to see if it contains any clauses that either restrict membership transfer or require certain conditions for it to happen. This is especially important for multi-member LLCs, as the interest transfer could be invalidated if those conditions aren’t met.
Next, the operating agreement should be updated to reflect that the LLC is now owned by the chosen trust. This can be done by filing an amendment with the State of Florida’s Division of Corporations. Don’t forget to remove anyone who will no longer be listed as having interest in the company, too.
- Assignment of Membership Interest Agreement
When transferring a Florida LLC’s ownership from an individual member to a trust, the first thing that you’ll need is called an Assignment of Membership Interest Agreement. This is a document for reallocating a given member’s level of ownership in a company. In this instance, it will be used to transfer ownership of your Florida LLC to your chosen trust, rather than to another member or individual.
Automatic Transfer of Florida LLC Membership Interest
Interest in a Florida LLC can also automatically transfer to a designated individual under certain circumstances. In other words, these situations pass on membership interest while bypassing probate without using a Florida trust as an intermediary. Still, they’re no substitution for a comprehensive estate plan set up with an attorney.
- Transfer on Death Designation
Florida LLC membership interest will also be transferred without passing through probate court if the company has a signed Transfer on Death Form. As the name suggests, this document nominates the individual or entity that will inherit the LLC upon the death of its owning member or members.
- Operating Agreement Provisions
A beneficiary can also be named using the Florida LLC’s operating agreement. A clause along these lines can also transfer interest to a designated individual while bypassing probate. If no such provision exists, you can amend the operating agreement to include it. However, if the LLC has members, then their consent will be needed as well.
While the potential benefits are clear, setting up a revocable living trust to transfer your LLC interest to can come with certain complications if you don’t know what you’re doing. That’s why it’s often advisable to hire professionals, such as ourselves, to manage your estate planning needs. For more, call us at (727) 279-5037 or schedule an appointment with us online.
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