Combining a Wyoming LLC with a living trust creates a structure that serves multiple planning goals simultaneously. The LLC provides liability protection and charging order benefits, while the trust owns the LLC membership interest to avoid probate, facilitate incapacity planning, and maintain privacy. Understanding how to set up a Wyoming LLC under a living trust properly ensures both layers function as intended.
Why Use This Structure
A Wyoming LLC owned by a living trust addresses several planning objectives that neither entity achieves alone.
Probate avoidance is a primary benefit. When an individual owns an LLC membership interest directly, that interest becomes part of their probate estate at death. The family must open a probate case, wait for court approval, and potentially disclose the interest publicly. When a living trust owns the LLC membership interest instead, the interest passes according to the trust terms without court involvement. The successor trustee simply continues managing the trust assets, including the LLC, according to the trust document.
Incapacity planning improves as well. If an individual LLC owner becomes incapacitated, obtaining authority to manage the LLC may require a court proceeding for guardianship or conservatorship. When a trust owns the LLC, the successor trustee named in the trust document steps in automatically upon the grantor’s incapacity, managing the LLC without court involvement.
Charging order protection is preserved when the trust is properly structured. Wyoming’s charging order statute under Section 17-29-503 provides that a charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment from a debtor’s LLC interest. This protection continues when the membership interest is held in trust, provided the trust is not disregarded for creditor purposes.
Privacy is enhanced through the combination. Wyoming does not require disclosure of LLC members or managers in public filings. When a trust owns the LLC, even the trust document remains private because Wyoming does not require trust registration. The only public information is the registered agent, keeping ownership details confidential.
Revocable Trust vs. Irrevocable Trust
The type of trust that owns the LLC affects both asset protection and tax treatment.
A revocable living trust is the most common choice for basic estate planning. The grantor creates the trust, serves as trustee during their lifetime, and retains the power to revoke or amend the trust at any time. For income tax purposes, the trust is disregarded, and all trust income is reported on the grantor’s personal return. The LLC is treated as owned directly by the grantor for tax purposes.
A revocable trust provides probate avoidance and incapacity planning but does not provide asset protection during the grantor’s lifetime. Because the grantor can revoke the trust and access the assets at any time, creditors of the grantor can generally reach trust assets, including the LLC membership interest.
An irrevocable asset protection trust provides a higher level of creditor protection but requires the grantor to give up the power to revoke the trust. Wyoming’s qualified spendthrift trust statute allows grantors to be discretionary beneficiaries of irrevocable trusts they create while still receiving protection from future creditors after the applicable waiting period.
When an irrevocable Wyoming asset protection trust owns a Wyoming LLC, the structure provides two layers of protection. A creditor must first overcome the trust’s spendthrift provisions and then obtain only a charging order against the LLC interest. This layered approach creates substantial obstacles for potential creditors.
Formation Steps
Setting up a Wyoming LLC under a living trust involves several coordinated steps.
First, determine which trust will own the LLC. If you have an existing living trust, the trust can be named as the member of a new LLC or can acquire membership in an existing LLC. If you do not yet have a trust, consider creating the trust first so it can be named as the initial member of the LLC.
Second, form the Wyoming LLC if it does not already exist. Wyoming LLCs are formed by filing Articles of Organization with the Wyoming Secretary of State. The filing requires a registered agent with a physical address in Wyoming, the name of the LLC, and basic formation information. Wyoming does not require disclosure of members or managers in the public filing.
Third, name the trust as the member of the LLC. In the Articles of Organization, you can list the trust as the initial member, though this is not required in the public filing. In the LLC’s internal Operating Agreement, the trust should be clearly identified as the member. The trust will be listed with its full name, such as “The John Smith Revocable Trust dated January 15, 2025.”
Fourth, have the trustee sign the Operating Agreement on behalf of the trust. The signature block should reflect that the trustee is signing in their capacity as trustee, not individually. For example: “John Smith, as Trustee of the John Smith Revocable Trust dated January 15, 2025.”
Fifth, if an existing LLC is being transferred to a trust, prepare an assignment of membership interest from the individual to the trust. This document should be signed by the individual transferring the interest and acknowledged by the trustee receiving it. The Operating Agreement should be amended to reflect the new ownership.
Sixth, update the trust’s schedule of assets to include the LLC membership interest. This schedule, often attached to the trust as an exhibit, lists the assets held in trust and should be updated whenever significant assets are added or removed.
Operating Agreement Considerations
The LLC Operating Agreement should address several issues that arise when a trust is the member.
Identify the trustee’s authority. The Operating Agreement should specify that the trustee has authority to act on behalf of the trust as member, including voting on LLC matters, receiving distributions, and signing documents.
Address successor trustees. When the original trustee dies or becomes incapacitated, a successor trustee assumes management of the trust. The Operating Agreement should recognize that the successor trustee steps into the rights and obligations of the prior trustee without requiring consent of other members or any formal transfer of the membership interest.
Consider management structure. Wyoming LLCs can be member-managed or manager-managed. When a trust owns the LLC, it often makes sense to have the trustee also serve as manager, centralizing control. Alternatively, the grantor can serve as manager while the trust owns the membership interest, separating management from ownership.
Include spendthrift provisions for additional protection. Even though the trust has its own spendthrift provisions, the Operating Agreement can reinforce that creditors of a member have no right to participate in management or force distributions.
Tax Treatment
When a trust owns an LLC, tax treatment depends on both the trust type and the LLC election.
A single-member LLC owned by a grantor trust (either revocable or an irrevocable grantor trust) is a disregarded entity for federal income tax purposes. All LLC income and expenses flow through to the grantor’s personal tax return, just as if the grantor owned the LLC directly. No separate LLC tax return is required.
A single-member LLC owned by a non-grantor irrevocable trust is treated as owned by the trust. The LLC income flows to the trust, which reports it on Form 1041. Distributions to beneficiaries may carry out income to be taxed at the beneficiary level.
Multi-member LLCs are taxed as partnerships regardless of trust ownership. The trust receives a Schedule K-1 reflecting its share of LLC income, which is then reported on the trust’s return or flows through to the grantor if it is a grantor trust.
An LLC can elect to be taxed as an S corporation or C corporation, which may be beneficial in certain circumstances. The choice of entity taxation should be coordinated with overall tax planning.
Maintaining the Structure
Proper maintenance of both the trust and the LLC is essential for the structure to function as intended.
Keep the trust and LLC assets separate. Do not commingle trust assets with personal assets or LLC assets with personal assets. Maintain separate bank accounts and records.
Observe LLC formalities. Even though Wyoming does not require annual meetings, documenting major decisions, maintaining records, and operating the LLC as a legitimate business entity helps prevent veil piercing arguments.
File Wyoming annual reports. Wyoming LLCs must file an annual report with the Secretary of State and pay the associated fee to remain in good standing.
Update documents as circumstances change. When trustees change, when beneficiaries change, or when the trust is amended, ensure the LLC records reflect current ownership and that authorized signers are properly documented.
Common Mistakes to Avoid
Several errors can undermine the benefits of this structure.
Failing to actually transfer the LLC interest to the trust creates a situation where the LLC remains in the individual’s probate estate despite the intention to have it pass through the trust. The transfer must be documented and the Operating Agreement updated.
Naming the wrong entity as member creates confusion. The member should be the trust itself, not the trustee individually. There is a legal difference between John Smith as Trustee of the John Smith Trust and John Smith in his individual capacity.
Ignoring state-specific requirements for multi-state situations may cause problems. If the LLC holds real estate or does business in another state, that state’s laws regarding foreign LLCs, real property transfers, and trust recognition must be considered.
Conclusion
Setting up a Wyoming LLC under a living trust combines the liability protection and charging order benefits of the LLC with the probate avoidance, incapacity planning, and privacy features of the trust. The structure requires careful attention to formation documents, ownership records, and ongoing maintenance. When properly implemented, it creates an effective planning tool for asset protection and estate planning.
For assistance with setting up a Wyoming LLC under a living trust or other asset protection structures, consider consulting Mark Pierce and Matt Meuli at Wyoming Trust Attorney.