LLC Interests and Trust Funding

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If you own a business in Atlanta, Georgia, you have worked hard to build something valuable. But have you thought about what happens to that business if you pass away or become unable to manage it? For many business owners, an LLC is the vehicle of choice for holding and protecting assets. Pairing that LLC with a trust can be one of the most powerful moves in your estate plan. At Slowik Estate Planning, located in Atlanta, Georgia, we help business owners like you think through how LLC interests and trust funding work together under Georgia law, so your assets go to the right people, the right way, at the right time.

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What Is Trust Funding and Why Does It Matter for LLC Owners?

Creating a trust is only step one. A trust that holds no assets does almost nothing for you. The real work, and the real benefit, comes from funding the trust. That means actually transferring ownership of your assets into the trust’s name. For LLC owners, this usually means transferring your membership interest in the LLC to the trust.

Think of it this way. You build a safe, but you never put anything inside it. That safe does not protect your valuables. A trust works the same way. The document alone is not enough. You have to fund it.

Under Georgia’s Revised Trust Code, O.C.G.A. Title 53, Chapter 12, a trust becomes operational and meaningful only when it actually holds assets. Article 2 of that chapter, covering express trusts under O.C.G.A. §§ 53-12-20 through 53-12-28, sets out the rules for how a valid trust is created and what it takes for the trust to hold property. If your LLC interest is never transferred to the trust, it will likely pass through your estate at death, which can mean probate, delays, and costs your family did not need.

For Atlanta business owners, funding your trust with your LLC interest means your membership interest avoids probate, transfers smoothly to your trust beneficiaries, and stays under the management of your chosen trustee without court involvement. That is a major benefit, especially if your LLC holds real estate, investments, or an active business.

Slowik Estate Planning works with Atlanta clients to make sure their trusts are not just drafted, but actually funded. We review your LLC operating agreement, identify any transfer restrictions, and prepare the documents needed to complete the transfer properly.

How Georgia Law Governs the Transfer of LLC Interests to a Trust

Transferring your LLC membership interest to a trust is not as simple as writing a note. Georgia law has specific rules that govern how this is done. Under O.C.G.A. § 14-11-502, a limited liability company interest is generally assignable in whole or in part, unless the LLC’s articles of organization or operating agreement say otherwise. The law also makes clear that an assignment alone does not automatically make the trust a full member of the LLC with voting rights. The trust may only receive economic benefits, like distributions and profits, unless the other members consent to admit the trust as a full member.

This is an important distinction. If you transfer your LLC interest to your revocable living trust and you serve as your own trustee, you typically retain full control. You can still manage the LLC, vote on decisions, and run the business just as before. The trust simply holds the legal interest. When you pass away or become incapacitated, your successor trustee steps in without any court order needed.

If your LLC has multiple members, the operating agreement may require their consent before you can transfer your interest. Some operating agreements also restrict transfers to certain types of entities. That is why reviewing your operating agreement before starting the transfer process is critical. You do not want to violate your own LLC’s governing documents.

The transfer itself is typically done through a written assignment of membership interest, which is a legal document that formally moves your ownership from your individual name to the trust. You may also need to update the LLC’s membership records and, in some cases, amend the operating agreement to reflect the trust as the new member of record.

Working with an Atlanta estate planning lawyer at Slowik Estate Planning means you get this done correctly the first time. We prepare the assignment documents, review your operating agreement, and coordinate with you to make sure the transfer is complete and legally sound.

Revocable vs. Irrevocable Trusts: Which One Should Hold Your LLC Interest?

Not all trusts work the same way, and the type of trust you choose matters a great deal when it comes to your LLC interest. The two main categories are revocable trusts and irrevocable trusts, and each has different legal and tax consequences under both Georgia and federal law.

A revocable living trust is the most common choice for Georgia business owners who want to fund a trust with their LLC interest. Under O.C.G.A. §§ 53-12-40 through 53-12-45, Article 3 of the Revised Georgia Trust Code, a revocable trust can be changed, amended, or revoked entirely during your lifetime. You keep full control. The assets in a revocable trust are still considered part of your taxable estate, which means your heirs will generally receive a step-up in basis on appreciated assets at your death. That can save your family a significant amount in capital gains taxes when they eventually sell the LLC interest or the underlying assets.

An irrevocable trust works differently. Once you transfer your LLC interest into an irrevocable trust, you generally give up control over those assets. The trade-off is potential estate tax savings and creditor protection. However, IRS Revenue Ruling 2023-2 brought a major change that Atlanta business owners need to understand. Revenue Ruling 2023-2, issued in March 2023, made a significant change to how assets in irrevocable trusts are treated. Assets placed in an irrevocable trust that are excluded from the grantor’s taxable estate will no longer be eligible for a step-up in basis. This means the trust’s beneficiaries may inherit assets with the grantor’s original purchase price rather than the fair market value at the time of the grantor’s death.

They may find that they will have to pay significant capital gains tax when they sell the assets. This is a real concern for LLC owners whose business interests have grown substantially in value over the years. The choice between a revocable and irrevocable trust is not one-size-fits-all. Slowik Estate Planning helps you weigh the trade-offs based on your specific situation, the value of your LLC, and your long-term goals for your family.

The Tax Implications of Funding a Trust With LLC Interests

Taxes are one of the biggest concerns Atlanta business owners have when it comes to trust funding. And for good reason. The tax rules around LLC interests held in trust can be complicated, and getting them wrong can cost your family dearly.

When you transfer your LLC interest to a revocable trust, there are generally no immediate income tax or gift tax consequences. The IRS treats the trust as your alter ego for tax purposes. You still report all income from the LLC on your personal tax return, just as before. This is because a revocable trust is a grantor trust under federal tax rules, meaning you are still treated as the owner for income tax purposes.

With an irrevocable grantor trust, the tax picture is more nuanced. Revenue Ruling 2023-02 specifically addresses assets in irrevocable grantor trusts. It states that the step-up in basis under Section 1014 of the Internal Revenue Code generally does not apply to assets in such trusts not included in the deceased grantor’s gross estate for federal estate tax purposes. In essence, assets transferred into an irrevocable trust during the grantor’s lifetime, and thus removed from their estate, do not qualify for the step-up in basis at the time of their death.

This matters for LLC owners because if your LLC interest has appreciated significantly, your heirs could face a large capital gains tax bill when they sell. With Revenue Ruling 2023-2, the IRS basically stated that the grantor has to choose: if the grantor wants the step-up in basis, the asset has to be part of the grantor’s estate at death. If instead the grantor wants the creditor protection, discounts for lack of control and marketability, and the option of locking in exemption dollars, then the grantor loses the step-up in tax basis.

Georgia also has its own rules for trust administration and investment of trust assets under O.C.G.A. Title 53, Chapter 8, which governs investments, sales, and conveyances. Trustees have a duty to manage trust assets prudently, which includes managing LLC interests responsibly for the benefit of your trust administration and the people who depend on it. Slowik Estate Planning helps you structure your plan in a way that balances estate tax goals, capital gains tax consequences, and the practical needs of your family and business.

Spendthrift Protections and LLC Interests Held in Trust

One of the most valuable features of holding your LLC interest in a trust is the protection it can offer your beneficiaries. Georgia law provides strong spendthrift trust protections under Article 5 of the Revised Georgia Trust Code, O.C.G.A. §§ 53-12-80 through 53-12-83. A spendthrift provision in your trust prevents a beneficiary from voluntarily transferring their interest in the trust, and it also prevents a beneficiary’s creditors from reaching the trust assets before a distribution is made.

Why does this matter for an LLC interest? Imagine you leave your LLC membership interest in a trust for your adult child. Without spendthrift protection, a creditor of your child could potentially reach that LLC interest to satisfy a debt. With a properly drafted spendthrift trust, the creditor generally cannot touch the interest while it remains inside the trust.

This type of protection is especially important for business owners who want to make sure the LLC stays in the family and does not end up in the hands of a creditor, an ex-spouse, or someone who does not share your vision for the business. It also protects beneficiaries who may not be financially responsible enough to manage a business interest on their own.

Georgia’s spendthrift rules do have limits. Certain creditors, such as those with claims for child support or alimony, may still be able to reach trust distributions. That is why the specific language in your trust document matters so much. A poorly drafted spendthrift provision may not hold up when it counts.

Slowik Estate Planning drafts trust documents that include the right protections for your family’s situation. Whether you are planning for a single heir or multiple wills and trust arrangements across a blended family, we make sure the language is clear, enforceable, and tailored to Georgia law. We also consider unique family needs, including pet guardianships and other special provisions that matter to you.

Steps to Properly Fund Your Trust With an LLC Interest in Georgia

Funding a trust with an LLC interest in Georgia requires more than good intentions. There is a specific process you need to follow, and skipping steps can leave your plan incomplete and your family exposed. Here is what the process generally looks like when you work with Slowik Estate Planning in Atlanta.

First, you need a properly drafted trust document. The trust must be valid under Georgia law, which means it must meet the requirements set out in the Revised Georgia Trust Code under O.C.G.A. Title 53, Chapter 12. The trust must clearly identify the trustee, the beneficiaries, and the terms under which the trust assets are managed and distributed.

Second, you need to review your LLC’s operating agreement. The operating agreement governs what you can and cannot do with your membership interest. Some agreements require the consent of all other members before any transfer can be made. Others may restrict transfers to certain types of entities. You need to know what your agreement says before you take any action.

Third, you prepare and sign an assignment of membership interest. This is the formal legal document that transfers your ownership from your individual name to the trust. The document should clearly identify the assignor (you), the assignee (the trust), and the specific interest being transferred.

Fourth, you update the LLC’s records to reflect the trust as the new member or interest holder. This may also require an amendment to the operating agreement, and in some cases, updated filings with the Georgia Secretary of State.

Fifth, you should review your plan periodically. Tax laws change, business values change, and family circumstances change. What works today may need updating tomorrow. Slowik Estate Planning recommends a regular review of your estate plan to make sure your trust remains properly funded and your goals are still being met. Contact us today at our Atlanta, Georgia office to get started.

FAQs About LLC Interests and Trust Funding in Atlanta, Georgia

Can I transfer my LLC interest to a trust without the consent of other members?

It depends on what your LLC’s operating agreement says. Under O.C.G.A. § 14-11-502, an LLC interest is generally assignable unless the operating agreement restricts it. If your LLC has multiple members, the agreement may require their consent before you can transfer your interest. Even if consent is not required for the assignment itself, admitting the trust as a full member with voting rights typically does require the other members’ approval. Always review your operating agreement before starting the transfer process, and work with an attorney to make sure you follow the correct steps.

Does transferring my LLC interest to a revocable trust trigger any taxes?

Generally, no. Transferring your LLC interest to a revocable living trust is not a taxable event for federal income tax or gift tax purposes. The IRS treats a revocable trust as a grantor trust, meaning you are still considered the owner of the assets for tax purposes. You continue to report LLC income on your personal tax return just as before. However, if you are transferring to an irrevocable trust, the tax consequences are more significant and you should consult with an estate planning attorney before making any moves.

What happens to my LLC interest if I die without putting it in a trust?

If your LLC interest is not held in a trust at the time of your death, it will likely need to go through Georgia’s probate process. Probate is a court-supervised process governed by O.C.G.A. Title 53, Chapter 5, and it can be time-consuming and costly. During probate, the transfer of your LLC interest may be delayed, which could disrupt business operations and create uncertainty for your co-members. Placing your LLC interest in a trust before you die allows it to pass directly to your named beneficiaries without going through probate.

Will my heirs owe capital gains tax when they inherit my LLC interest through a trust?

It depends on the type of trust. If your LLC interest is held in a revocable living trust, your heirs generally receive a step-up in basis to the fair market value of the interest at your death, which reduces or eliminates capital gains tax on any prior appreciation. However, under IRS Revenue Ruling 2023-2, assets held in an irrevocable trust that are not included in your taxable estate do not receive a step-up in basis. Your heirs would inherit the interest at your original cost basis, which could result in significant capital gains taxes if they sell. This is a critical planning consideration that Slowik Estate Planning can help you address.

Can a trust be a member of a Georgia LLC?

Yes. Under Georgia law, a trust can hold a membership interest in an LLC and be admitted as a member, provided the LLC’s operating agreement permits it. The trustee acts on behalf of the trust in its capacity as a member. If you are the trustee of your own revocable living trust, you can continue to manage the LLC just as you did before the transfer. If you name a successor trustee, that person or institution will step into your role upon your death or incapacity. This makes trust ownership of an LLC a practical and flexible tool for business succession planning in Georgia.

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