LLCs (Limited Liability Companies) and trusts are common methods of business structure for different reasons. Many people think that an LLC will cover their Asset Protection and that they do not need a trust. This is not necessarily so. Each of these two entities have different purposes and especially considering the circumstances.
A Limited Liability Company is a hybred entity because you can choos the method of taxation. In most states LLCs can be changed or amended to become other corporate entities, like a Partnership or S-Corp. The LLC has some amount of protection for its members,usually called Managing Members. This protection varies by the Operating Agreement, the legal situation imposed and the structure of the company. For instance, a one member LLC provides almost no protection as the liability may flow through to the owner just as if the entity is considered a “person.” You do not want to get caught=up in this situation. LLCs are on the other hand, very easy to conduct business and if you keep track of your expenses, tax filing is minimally complicated.
Trusts are an entirely different beast. In a trust the beneficiary is removed from the ownership and the operating of the trust is conducted by a Trustee. The Trustee operates by a written agreement according to how the trust is set up from the beginning. The Trustee controls the operation of the trust and the beneficiary receives what ever advantages and subsidies the trust has to offer. This threby protects the beneficiary from creditors and debtors that they may have outside the trust.
Only someone who understands business law and trust law can determine which of these two is your best option and it is possible that neither of these two are your best choice. The solution is to find a qualified advisor who can give you all of the information that you need to decide considering taxaion, asset protection and profitability.
