What Happens When a Trust Inherits a Real Estate LLC Interest
Many families today hold real estate through LLCs for asset protection and liability reasons. At the same time, more and more are using revocable and irrevocable trusts as part of their estate plan to avoid probate, protect privacy, and plan for smooth wealth transfers.
But what happens when those two tools intersect?
Can a trustee automatically step into the shoes of a deceased LLC member? Will the operating agreement recognize that trustee as a valid decision-maker? And what if it doesn’t?
These questions often come up during moments of transition—after the death of a parent, during a refinance, or when it’s time to sell inherited real estate. At that point, if the documents weren’t set up to speak to each other, the result is confusion, delay, and sometimes conflict.
Understanding the Problem
In theory, your trust should be able to receive your LLC membership interest just like it would a bank account or investment property. But real estate LLCs operate by contract, and that contract is the Operating Agreement.
We routinely see operating agreements that:
Prohibit ownership by “non-natural persons” (which includes trusts)
Require unanimous approval for transfers of membership interest
Distinguish between economic rights (distributions) and management rights (control)
Say nothing at all about how to handle a member’s death
Even if your trust becomes the legal owner of your share, it may not be recognized by the surviving members as having a say in decisions. And if the operating agreement is silent or unclear, a dispute could follow.
Real Estate, Refinancing, and Roadblocks
Let’s say your parent owned a 30% interest in an LLC that owns a rental building in Queens. They’ve passed away, and the trust is now the rightful owner of that interest. The surviving members are trying to refinance, but the lender requires all members to sign the loan documents.
Now the lender wants to see the operating agreement to see who has the authority to sign for this trust-owned interest.
If the agreement doesn’t address trust ownership or trustee authority, the deal may stall. The surviving members may push back. And your family could end up in court, asking a judge to confirm the trustee’s rights. It happens more often than you’d think.
What You Can Do Now
If you hold real estate through an LLC and also have a trust—or are thinking of creating one—it’s important to coordinate the documents early.
Here’s what we recommend:
Review the operating agreement: Does it allow for trust ownership? Does it define what happens on a member’s death?
Transfer the membership interest during lifetime, if appropriate: It’s cleaner than leaving it to the trust through your will.
Amend the agreement, if needed: The LLC members can agree to update the language to allow for trust-owned membership interests and clarify who can act on behalf of a trust.
Make sure the trust is properly drafted: It should give the trustee authority to manage closely held business interests, including real estate LLCs.
Keep records updated: Company records should reflect who the current members are, and your trust should be formally recognized.
Why It Matters
We’ve worked with families where real estate assets were tied up for months, sometimes years, because of a misalignment between the trust and the LLC structure. These are avoidable problems, but they require thoughtful planning on the front end.
If you or a loved one owns real estate through an LLC, take the time to have your estate plan reviewed with the operating agreement in mind. It’s one of the most overlooked issues in estate and asset protection planning—and one of the easiest to fix if caught early.
Planning Ahead
We work with families, business owners, and real estate investors throughout Long Island, Queens, and New York City to ensure that their trusts and LLCs are working together, not against each other.
If you’d like to review your estate plan or make sure your LLC operating agreement reflects your intentions, we’re here to help @ 516-570-4016.
