United States: Trusts As Members Of NJ LLCs

This article examines the issue of whether a trust or a trustee is the member of a limited liability company (LLC), how a membership interest should be titled, and the consequences to a membership interest on the death of the settlor or trustee of a trust.

LLC Member

The New Jersey Revised Uniform Limited Liability Company Act (NJ-RULLCA) defines a 'member' as a person that has become a member of an LLC1 and defines a 'person' to include a trust.2 Therefore, a trust may be a member of an LLC.

However, although a trust may be a member of an LLC, it does not hold title to the membership interest in an LLC. Instead, the trustee of the trust holds title in his or her capacity as trustee. In this regard, the New Jersey Uniform Trust Code provides that a trustee holds title to the trust's property (such as a membership interest) in his or her name as trustee of the trust.3 This is because a trust is a fiduciary relationship rather than a separate legal entity.4 The New Jersey Uniform Trust Code emphasizes this point by further providing that "A written instrument which creates a trust or transfers property to a trust shall not be invalid or ineffective because the transferee is identified as the trust rather than the trustee thereof."5

As a result, although it may be semantics, while a trust may be a member of an LLC, it does not hold title to the membership interest in the LLC. Instead, title to the membership interest is held by the trustee in his or her capacity as trustee of the trust (using the trust's employer identification number). For example, the trust's membership would be reflected in the LLC's records as "John Doe as Trustee of the Robert Roe Trust dated July 4, 1976" or "John Doe as Trustee of the Robert Roe Trust under Trust Agreement dated July 4, 1976."

Death of Trustee

What happens when the trustee of a trust dies? NJ-RULLCA provides that a "person is dissociated as a member from a limited liability company when:...In the case of a person that is a trust or is acting as a member by virtue of being a trustee of a trust, the trust's entire transferable interest in the company is distributed."6 Therefore, a trust is not dissociated on the death of a trustee. A trust is dissociated only when its entire interest in the LLC is distributed to its beneficiary. The Uniform Law Commission's commentary to this provision states that a "change in trustee...does not cause dissociation."7 Therefore, if a trustee dies, the successor trustee is substituted for the deceased trustee to hold title to the membership interest as trustee.

Death of Settlor

What happens when the settlor of a trust dies? The answer depends on whether the trust continues or terminates as a result of the settlor's death. If the trust continues, the trustee of the trust continues to hold the membership interest as trustee. If the settlor is also the trustee of the trust, upon the death of the settlor/ trustee, a successor trustee would be appointed and the successor trustee would be substituted for the deceased settlor/trustee to hold title to the membership interest as trustee. As a result, if the trust continues upon the death of a settlor, there is no event of dissociation. If a trust is a revocable trust and becomes an irrevocable trust upon the settlor's death, the result is the same. The change in the trust from revocable to irrevocable has no bearing on the status of the trustee or successor trustee holding title to the membership interest of the LLC.8

If the trust is terminated, the trustee distributes the entire transferable interest from the trust to its beneficiary. As a result, the trustee no longer holds title to the membership interest and the beneficiary is a mere transferee of the membership interest (unless the members of the LLC admit the beneficiary as a member of the LLC). As noted, NJ-RULLCA provides that a trustee is dissociated as a member when the trust's entire transferable interest is distributed.9

Conclusion

The above analysis can be summarized in the following table:

Footnotes

1. N.J.S.A. 42:2C-2 (definition of member).

2. N.J.S.A. 42:2C-2 (definition of person).

3. N.J.S.A. 3B:31-18(a)&(b) ("A trust may be created by (a) transfer of property under a written instrument to another person as trustee during the settlor's lifetime or by will or other written disposition taking effect upon the settlor's death [or] (b) written declaration by the owner of property that the owner holds identifiable property as trustee.") (emphasis added). See also Restatement (Third) of Trusts, §2 (definition of trust); Restatement (Second) of Trusts, §2 (definition of trust); comment d to Restatement (Second) of Trusts, §2.

4. See Americold Realty Trust v. Conagra Foods, Inc., 136 S. Ct. 1012, 1016 (2016) ("Traditionally, a trust was not considered a distinct legal entity, but a fiduciary relationship between multiple people.) (internal quotations omitted; citations omitted). But see Reporter's Notes to comments a and i to Restatement (Third) of Trusts, §2 (noting the development of the concept that a trust is a separate entity).

5. N.J.S.A. 3B:31-19(d). The New Jersey Uniform Trust Code also includes a provision dealing with the personal liability of a trustee who holds an interest as a general partner, N.J.S.A. 5. N.J.S.A. 3B:31-19(d). The New Jersey Uniform Trust Code also includes a provision dealing with the personal liability of a trustee who holds an interest as a general partner, N.J.S.A. 3B:31-80. The key language in this provision is the phrase "a trustee who holds an interest as a general partner in a general or limited partnership." By analogy, a trustee holds an interest as a member of an LLC. Although not enacted in New Jersey, another section of the Uniform Trust Code provides that "a trustee may..., with respect to an interest in [an LLC],...take any action that may be taken by...[its] members...." Uniform Trust Code, §816(6).

6. N.J.S.A. 42:2C-46(h).

7. Uniform Law Commission August 19, 2015 Comment to RULLCA §602(9), which is the basis for N.J.S.A. 42:2C-46(h).

8. If a general partnership elected to become a limited liability partnership or a corporation elected to convert to an LLC, would anyone argue that its status changed from a member to a dissociated member? The form of the legal entity may have changed, but the company and its owners remained the same. By analogy, the trustee and the beneficiary remain the same when a revocable living trust becomes an irrevocable trust upon the death of a settlor.

9. N.J.S.A. 42:2C-46(h). Obviously, the same result would occur for an inter-vivos transfer. That is, the transfer of an entire transferable interest from the trust to its beneficiary before the death of the settlor or the termination of the trust. In such a scenario, the trustee would be dissociated as a member and the beneficiary would be a mere transferee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Kramer Levin Naftalis & Frankel LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Kramer Levin Naftalis & Frankel LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions