How does forming an LLC affect my personal estate plan and what I should put in a trust? – North Carolina

Short Answer

In North Carolina, forming an LLC usually does not replace a will or trust—it changes what is owned (an LLC membership interest instead of the underlying business assets) and how that ownership can pass at death. A trust can often own an LLC interest, but the LLC’s operating agreement may limit transfers and may control who can vote or manage after death. The practical goal is coordination: the estate plan, the operating agreement, and any trust “funding” steps should all point to the same outcome.

Understanding the Problem

In North Carolina estate planning, the key question is: when a person forms an LLC and becomes an owner, can that ownership be placed into a trust (or left to pass under a will), and what happens to control of the business at death? The decision point is whether the LLC interest should pass through probate under a will or be owned by a trust during life so the successor trustee can step in. The answer depends on how the LLC is structured and what the operating agreement says about transfers and management.

Apply the Law

Under North Carolina law, an LLC interest is generally personal property. At death, that interest will pass under the person’s estate plan (will, trust, or beneficiary-style transfer if available for that type of asset), but the LLC’s governing documents can restrict who becomes an owner with management rights. Separately, North Carolina law allows trust instruments to grant trustees broad powers to hold, manage, and even continue business interests—so a properly drafted trust can be designed to own and administer an LLC interest without needing a court order for routine decisions.

Key Requirements

Clear ownership path: The plan must say who receives the LLC interest at death (a trust, a person, or multiple people) and in what shares.
Authority to manage: The person or fiduciary stepping in (executor or trustee) must have practical authority to vote, manage, and sign—often controlled by the operating agreement and the trust’s powers.
Proper “funding” and paperwork: If the goal is trust ownership, the LLC interest typically must be assigned to the trust and reflected in company records (and sometimes in an amended operating agreement).

What the Statutes Say

N.C. Gen. Stat. § 32-27 (Trustee powers, including continuing a business) – Allows a trust to be drafted to give a trustee broad powers to hold assets, continue a business, and form or hold interests in entities.
N.C. Gen. Stat. § 41-48 (Nontestamentary transfer on death) – Recognizes that certain transfer-on-death arrangements can pass by contract rather than by will, depending on the type of asset and how it is titled.

Analysis

Apply the Rule to the Facts: The facts describe someone who is revisiting a will-versus-trust decision while also forming LLCs and planning to coordinate next steps with a CPA. Forming LLCs means the estate plan should now address ownership of LLC membership interests (and who controls them if something happens), not just the underlying business activity. If the plan uses a trust, the trust should be drafted with business-asset powers and then “funded” so the trust actually owns the LLC interests (or the plan should clearly leave those interests through the will with a workable transition plan).

Process & Timing

Who updates the plan: The business owner (and, if applicable, the other members). Where: Primarily in the LLC operating agreement and the estate planning documents; company records should reflect the current owner. What: An updated operating agreement (or amendment) plus either (a) a will that specifically addresses LLC interests or (b) a trust plus an assignment of the LLC interest to the trust. When: Ideally as part of forming the LLC or immediately after, before additional contracts, bank accounts, or new members are added.
Coordinate control and succession: Confirm whether the operating agreement allows transfers to a revocable trust and whether a successor trustee can exercise voting/management rights or only receive distributions. If restrictions exist, the operating agreement may need to be revised so the estate plan can work as intended.
Confirm the “funding” is complete: If the trust is supposed to own the LLC interest, complete the assignment and update the LLC’s membership ledger (and any consents required by the operating agreement). If the will is supposed to control, confirm the will’s business provisions and the intended executor’s authority to handle business matters.

Exceptions & Pitfalls

Operating agreement overrides expectations: Many owners assume a will or trust can freely “give” the LLC to someone else. In practice, the operating agreement may limit transfers, require consent, or split economic rights (distributions) from management rights (control).
Unfunded trust: Creating a trust but never assigning the LLC interest to it can defeat the main reason people choose a trust for business interests (a smoother transition of control and reduced probate involvement).
Mismatched roles: Naming one person as executor and a different person as successor trustee (or business manager) can create conflict unless the documents clearly define who runs the business and who receives the value.
CPA coordination without legal alignment: Tax classification and accounting decisions matter, but they do not automatically fix transfer restrictions, successor control, or trust funding steps. The legal documents still need to match the intended outcome.

Conclusion

Forming an LLC in North Carolina changes estate planning because the transferable asset becomes the LLC membership interest, and the operating agreement may control who can receive it and who can manage it after death. A trust can often hold an LLC interest if the trust is drafted with business powers and the interest is properly assigned and recorded. The next step is to review the operating agreement and then update the will or trust to name the intended recipient and decision-maker, completing any assignment to the trust promptly.

Talk to a Estate Planning Attorney

If forming an LLC is changing how assets should pass at death or who should control the business during a transition, our firm has experienced attorneys who can help coordinate the operating agreement with a will or trust and the related paperwork. 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.