LLC vs. Trust?

[rjrivero]

I know there are a lot of folks who are using a Trust to get their Class 3 toys. I also know you can do the same with an LLC. My question is how did you decide to go with one over the other? What was/were the tipping factor(s) for you when you decided to go with the route you went?

In OHIO, we can set up an LLC for a one time fee. We register it with the state, and it has NO annual fees. Ever. Real tempting. When I grow old and wither, I just name my child a successor in the LLC, and they take over. No new taxes, just a change of the articles of incorporation. For this reason, I'm really leaning this way.

The added bonus: I don't have to engrave the lower with "rjrivero trust." I can name the LLC whatever I want to so it can "read" much better on the receiver.

I'm interested in hearing what you all have to say.

 

[Bartholomew Roberts]

You would need to look at Ohio's Trust Law; but the advantages of a trust over an LLC in say, Texas, would be:

1. No initial fee
2. No registering the trust with the state of Texas where it can be searched via public records (to include addresses and names)
3. No worries about missing a tax payment/filing a report and having your trust declared inactive
4.No filing quarterly sales taxes (or lack of them as the case may be)
5. Not having to worry about whether adding money to the LLC to buy a new toy is a taxable event creating "income" to be reported on your taxes

So off the top of my head, these would be some things to consider. On the plus side, there are fewer ways to invalidate an LLC when initially setting it up, and if you need it for some other purpose or already have one, it can be handy.

 

[bblatt11]

Off the top of my head and not meant as legal advice (talk to an OH attorney before proceeding):

LLCs usually require annual filings, and if you do buy a Class III through an LLC and then sell it, you may have to pay taxes on the "income." Moreover, your LLC paperwork has to be available for review by other LLC members and usually taxing agencies, whether or not you need to pay taxes in a given year. However, your corporate charter can do all sorts of wonderful things, like limit fiduciary duties to discreet functions.

Trusts are generally kept out of government searchable databases, don't require annual filings to the government, and can be kept mostly, if not completely tax free. But, Trustees owe a pretty strong fiduciary duty to trust beneficiaries, including properly investing trust funds, keeping the trust value stable or growing where possible, and keeping the records organized for private review. I can think of a couple of situations where a trust might require the sale of a Class III due to its potential value growth or because the trust can no longer maintain itself. In the latter case, such is usually grounds for terminating the trust and selling or distributing its assets.

In either case, whichever route you go, you should see an attorney and have a very detailed charter document drafted with your current and future goals foremost, taking into account possible future actions which could damage the focus of the LLC or trust.