Under Colorado/Wyoming law, an LLC interest is treated as personal property. Any personal property that you own, as opposed to your trust, at the time of your death will have to go through probate. Therefore, if you own an LLC or an interest in an LLC personally, e.g., it has not been transferred into your trust, it will have to go through probate which can cost a great amount of money, take time, and can delay the transfer of your LLC interests. However, you can transfer your LLC interest(s) to your trust just like you would transfer other personal property.
Before attempting to transfer any interest in the LLC, make sure you or your attorney thoroughly review the LLC’s Operating Agreement to ensure that you are permitted to transfer (or assign) your LLC interest. Violating any transfer provisions can cause your trust beneficiaries to have unrealistic expectations as the intended transfer will more than likely have been ineffective and your trust will not actually own your LLC interest. As you can imagine, this can cause your beneficiaries great frustration and lead to litigation. If your Operating Agreement does allow for transfer, but it places limitations or requires explicit procedures be followed to do so, make sure you follow these provisions to ensure the LLC interest transfer is effective.
Assuming your Operating Agreement allows you to transfer your interest, you will prepare and sign an assignment of your LLC interest to your trust. You will also sign this same document accepting the interest of the LLC as you will be the Trustee of your Trust.
Next, you will need to draft and file an Amendment to your Articles of Organization with the Wyoming/Colorado Secretary of State. If the LLC is member managed, then you will also need to file an amendment to the Articles to update the member of the LLC as prior to the transfer you as an individual would have been named, but after the transfer, the trust, not you as an individual, will be listed as the member. If the LLC is manager managed, you will need to file an amendment with the Colorado/Wyoming Secretary of State if your trust owns 20% or more of the LLC.
It would be ideal to amend the Operating Agreement to reflect the transfer of ownership from you to your trust, although it is not required. Of course, the practicability of doing so depends on the number of members of the LLC and the terms of the then existing Operating Agreement. Additionally, while it’s not required, it would also be a good idea to have the LLC members sign a resolution acknowledging and accepting the transfer of your LLC interest to your trust in order to avoid any future conflict, confusion, and possible litigation. By doing so, any issues within the Operating Agreement that may affect the validity of making this transfer can be dealt with now proactively rather than waiting for a problem to arise after you’ve passed.