Should instructions for my company live in the trust, the LLC operating agreement, or both, and which one controls if there’s a conflict? – North Carolina

Short Answer

In North Carolina, the LLC operating agreement governs how the company runs and who has voting and management rights. A revocable trust can own an LLC interest and instruct the trustee how to vote or manage that interest, but it cannot override the operating agreement’s rules for the company. If the trust instructions and the operating agreement conflict, the operating agreement controls the LLC; the trust controls the trustee’s duties to beneficiaries. The best practice is to align both documents.

Understanding the Problem

The issue sits at the intersection of estate planning and business governance: under North Carolina law, can instructions for a North Carolina LLC be placed in a revocable trust, the LLC operating agreement, or both, and what happens if those instructions conflict? The practical concern is whether a trustee’s instructions in the estate plan will be honored when they touch the company’s ownership, real estate already inside the LLC, and future purchases by the LLC.

Apply the Law

Under North Carolina law, an LLC’s operating agreement is the company’s internal rulebook. It sets management structure, voting rights, transfer restrictions, and how new members are admitted. A trust may own an LLC interest, and the trustee must manage that interest in good faith and with prudence. North Carolina’s trust law gives trustees broad powers to hold, vote, and manage business interests and to delegate specialized functions when appropriate. Company-facing rules live in the operating agreement; trustee-facing instructions live in the trust. When there is tension, the operating agreement controls the company, and the trust governs how the trustee must act toward beneficiaries.

Key Requirements

• Company governance in the operating agreement: Management, voting, transfers, buy-sell terms, and admission of transferees are set by the operating agreement and bind the company and members.
• Trust can own and direct the interest: A revocable trust may hold the LLC interest; the trust can instruct the trustee how to vote or manage that interest for beneficiaries.
• Conflict rule: If trust terms clash with the operating agreement, the operating agreement controls LLC actions; the trust controls the trustee’s duties to beneficiaries.
• Trustee powers and standards: Trustees have statutory power to manage business interests and must act in good faith and as a prudent person would, including delegating specialized functions when appropriate.
• Alignment is essential: To avoid conflict, amend the operating agreement to recognize trust ownership, successor control upon incapacity/death, and any consent/notice mechanics, and mirror those points in the trust.

What the Statutes Say

• N.C. Gen. Stat. § 36C-8-816 (Specific powers of trustee) – trustee powers include holding, managing, and exercising rights in business interests.
• N.C. Gen. Stat. § 36C-8-807 (Delegation by trustee) – trustee may delegate functions requiring special skill and must oversee the agent.
• N.C. Gen. Stat. § 36C-8-801 (Duty to administer trust) – trustee must act in good faith, consistent with the trust’s terms and beneficiaries’ interests.
• N.C. Gen. Stat. Chapter 57D (NC LLC Act) – operating agreements govern relations, transfers, and admission of members; specific sections vary by issue.

Analysis

Apply the Rule to the Facts: A revocable trust can hold the LLC membership interest that owns real estate and can instruct the trustee on voting and management priorities for that interest. The operating agreement will still control the LLC’s internal rules—such as any consent needed to transfer the interest to the trust, rights of first refusal, and how a transferee becomes a member with voting rights. For future real estate, the operating agreement should address who has authority to approve acquisitions; the trust can direct how the trustee should vote on those decisions, but cannot override company procedures.

Process & Timing

1. Who files: LLC members/manager execute actions; trustee signs as transferee. Where: Internal LLC records and company minute book in North Carolina. What: (a) Assignment of LLC interest to the revocable trust; (b) Member/manager consent or amendment to the operating agreement admitting the trust (or trustee) as a member, per the operating agreement; (c) Update the membership ledger and resolutions. When: Complete before incapacity or death and before any planned transfers that trigger buy-sell or consent rights.
2. If the operating agreement requires notices or consents (e.g., right of first refusal), deliver written notice per its procedure. Expect short response windows that vary by agreement; some require written waivers.
3. Update practical items: bank signers, property management authority, insurer endorsements, and, if manager changes, update public listings in the annual report. The trust’s schedule of assets should reflect the LLC interest.

Exceptions & Pitfalls

• Transfer limits: Buy-sell agreements, rights of first refusal, or member-consent provisions can delay or block transfers to a trust unless satisfied.
• Admission of the trust: Assigning an interest may transfer only economic rights unless the operating agreement admits the trust (or trustee) as a member with voting rights.
• Incapacity planning: In a member-managed LLC, add manager or successor-manager provisions so the business keeps operating if the member becomes incapacitated.
• Lenders and leases: Mortgages and leases may require lender/landlord consent before changes in ownership or control; check covenants before moving interests.
• Trustee duties: Even if aligned with the operating agreement, the trustee must act in good faith and prudently and should delegate specialized property or business functions when needed.

Talk to a Estate Planning Attorney

If you’re dealing with aligning a revocable trust and an LLC operating agreement for a North Carolina business, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at 919-341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.