Trust or LLC? Choosing the Right Tool for Your Goals

Posted By: Peter McFarland ICOR Blog & News,

As an attorney with years of experience in the field of asset protection and preservation, I’m often asked the question, “Should I set up a trust to hold my investment or conduct my business?”

Many of my clients are real estate investors. They may look to partner with someone to rehabilitate a property or hold a property as a rental, and they come to me asking to set up a trust.

Before considering a trust, I ask my clients what they are trying to accomplish. If they’re trying to preserve their assets and hard-earned wealth from potential creditors, a trust is not the answer.  However, if they’re trying to accomplish some important estate planning goals, then we’ll partner a trust with an entity, such as an LLC.

The simple truth is this: trusts are not the best vehicles for asset protection. Here’s why:

There are two types of trusts - revocable and irrevocable. A revocable trust is easily pierced through, so creditors can easily access your wealth. An irrevocable trust may fare better when challenged in court, but the client has to give up a disproportionate amount of both control and benefit from the asset for very modest gains in asset protection.  For these reasons, there are simply better tools for asset protection.

That said, trusts are wonderful tools for accomplishing estate planning goals.  They are great when used to:

  • Ensure beneficiaries do not inherit wealth at too young an age
  • Ensure beneficiaries with special needs are looked after, while still maximizing state aid
  • Ensure your hard-earned wealth transfers to the people you choose and on the terms that you decide
  • Avoid Probate

For the best of both worlds – great asset protection and strategic estate planning – we’ll pair the LLC and trust together, rather than simply relying on a trust, alone.

To set up or revise your estate plan, create or restructure an LLC, or to get your questions answered, please contact my firm, Fusion Legal & Tax, for a consultation: