Tag: Thought Experiment

Video

Hi folks, it’s Andy Stautz at Stautz Law. I am here today with the avant-garde of estate planning. I’m kidding. This talk is just kind of a thought experiment. It’s not informational. It’s definitely not legal advice. It’s just kind of a “what if?”  

So you might have seen my talk a couple weeks ago about planning around LLCs. If you’re a small business owner or you’re self-employed, you’ve got an LLC, I talk about how you can. Put those in trust. Make them payable on death. You know, handle them in probate and just kind of how to deal with that.  

Today. I want to float the idea that an LLC is a lot like a trust, and if you were really crazy I think you could use an LLC to do pretty much everything that a trust does.  

Is an LLC the same as a Trust?

Because think about it. OK, what’s a trust? A trust lets you separate legal and equitable title to property. And you give the trustee a set of instructions on how to administer the property for the benefit of the beneficiary, the beneficiaries.  

OK, What’s an LLC? Well, an LLC is an entity that controls some property according to instructions that are in an operating agreement for the benefit of the beneficial owners. Who could be whoever.  

Those are pretty analogous concepts. I mean, both are ways to hold property with instructions.  

Reasons for Different Treatment in the Law

Now trusts are specially favored in the law because, you know, we’ve got an elaborate trust code on how to create them, how to administer them, how to deal with situations where they’re not administered properly. How to change them if they’re not doing what you want to do, right? Lots of protections in the trust code. And. That kind of comes from. That comes from history, obviously. UM. But it’s not… Like… in an average smooth trust administration, do you need it? But the trust code is kind of a way of hedging around the fact that trusts are highly favored in the law, right? I’ve talked before about how trust is a legal fiction, right? There’s no reason the government needs to let you use a trust at all, much less use a trust to avoid probate, for instance.  

Well, you know what? How is an LLC different? Couldn’t you in theory make an LLC have an operating agreement with succession terms in the operating agreement. Make the interest in the LLC transferable on death. And then at death, you know, you avoid probate because it’s immediately payable to your successor interests. Your successor operator knows what to do and follows the operating agreement, and then you use the corporate code, you know, running a business for the benefit of the shareholders, basically like you use the, the, the corporate fiduciary code. As a like enforcement mechanism, if you need it.  

How is it different?  

I don’t think so… That’s just a funny idea… I don’t seriously recommend that anyone try it, and if you came to my office asking for it. I’d probably say no. But it’s an interesting thought experiment.  

It’s like, OK, what are we doing here? We are giving instructions. What do we want? We want the instructions to be followed. We want there to be an enforcement mechanism if it’s not, and we want to do it as privately as possible.  

Practical Reasons NOT to Use an LLC as a Trust Substitute

So the only advantage to using an LLC and having like this totally separate set of rules would be if you thought there was some advantage in… If there were like simplicity gains or cost effectiveness gains, right? Because people write their own LLC operating agreements all the time, most people would not dream of writing their own trust.  

But then it’s like, OK, by the time you’ve got an LLC operating agreement sophisticated enough to be a trust substitute, it’s like, OK, you need professional advice anyway. And so that’s where you come back to: If you walk to my office and you want to plan using that instead of a trust, I probably won’t.  

But it’s a fun idea. And I think I might be the only person kind of floating it, but it’s one way of thinking. It’s a lot and I hope it’s entertaining. And if you are an attorney and you do this, I would love to hear about it. And if you are a client or someone’s setting up your estate plan, and you either have done this or you’ve seen someone who does this, or you’re interested in trying it. I would love to hear. Because it sounds fun.  

OK, that’s all. A goofy one for today, but reach out if you want to talk about it. This is not advice, this is a theoretical discussion. OK? That’s all for today. Bye now.