LLC vs Trust: Which One Makes Sense?
The answer depends on your goal. What are you trying to protect. Often, the answer ends up being that you would benefit from both an LLC and a trust. They do very different things.
Your LLC is primarily about ownership and liability.
An LLC helps separate business or real estate activity from your personal assets. If you have multiple businesses or rental properties, you may choose to have multiple LLC's, further separating liability.
For example, if Sunny Acres LLC owns a rental house and Lucky Acres LLC owns your 4-plex, this would provide protection between those properties if something happened to one of them.
For example, if the balcony on the 4-plex falls through and your tenant is hurt, only Lucky Acres LLC is up for grabs. Your personal assets and Sunny Acres LLC would be separate, and not subject to the liabilities of Lucky Acres LLC.
This only works if you truly operate your LLC's separately from your own assets and each other.
Liability protections only go so far with an LLC. Your business assets are not completely shielded from your personal liability. If you do a bad act personally (perhaps you cause a car accident), both Sunny Acres LLC and Lucky Acres LLC are considered your assets and your transferable ownership of those LLC's could be up for grabs to cover your personal liabilities. This is why insurance is so important.
Your Trust is primarily about control and what happens to your assets.
A Trust provides a plan for managing your assets if you become incapacitated and directs who receives them when you die. To be clear, a revocable living trust is not about liability protection.
Bringing an LLC and a Trust together for your estate plan solves multiple purposes. This is where it gets interesting.
Your Trust could own your LLCs. You would be the trustee of your Trust. Two of the assets in the Trust would be Sunny Acres LLC and Lucky Acres LLC. The 4-plex would be titled with Lucky Acres LLC, and the rental house would be titled with Sunny Acres LLC.
The LLC answers:
“How do I own and operate my investment?”
The Trust answers:
“What happens to my investment if I can't manage it—and what happens to it when I'm gone?”
Your estate plan answers:
“How do all of these pieces work together?”
As your portfolio grows, your estate plan should grow with it. Building your wealth is just the first step. The next step is making sure your wealth can be managed, protected, and ultimately transferred according to your wishes.
Schedule Your Consultation and take the first step toward creating a complete estate plan that protects what matters most to you and your loved ones.
