Will putting my LLC membership interests into a trust give me any extra protection from lawsuits beyond what the LLC already provides? – North Carolina

Short Answer

Usually, no. In North Carolina, transferring an LLC membership interest into a typical revocable living trust generally does not add meaningful lawsuit protection beyond the LLC’s own liability shield, because the trust is treated as the owner’s alter ego for creditor purposes. An irrevocable trust can sometimes add protection, but only when it is properly structured, funded before trouble arises, and the owner does not keep control in ways that let a creditor treat the assets as still reachable.

Understanding the Problem

In North Carolina estate planning, the question is whether a person who owns an LLC can improve lawsuit protection by transferring the person’s LLC membership interest into a trust. The decision point is whether the trust changes what a creditor can reach if the person is sued and a judgment is entered. The analysis depends on the type of trust (revocable versus irrevocable), the owner’s retained powers, and how North Carolina treats an owner’s property interests when a creditor tries to collect.

Apply the Law

North Carolina law generally treats a revocable trust as a planning tool for management and probate avoidance, not as a barrier to the settlor’s personal creditors. If the owner can revoke the trust or freely control the trust assets, creditors can typically reach those assets the same way they could if the assets stayed in the owner’s individual name. By contrast, a properly designed irrevocable trust can limit access by the settlor’s creditors, but only if the transfer is not made to hinder creditors and the settlor does not keep rights that make the trust assets effectively still the settlor’s property.

Separately, an LLC primarily protects the owner from liabilities of the business itself (for example, a business debt or a lawsuit against the company). It does not prevent a creditor with a personal judgment against the owner from pursuing the owner’s economic rights in the LLC (and sometimes other remedies depending on the structure and facts). Putting the membership interest into a trust does not automatically change those collection rules.

Key Requirements

Type of trust matters: A revocable living trust usually does not add creditor protection for the person who created it; an irrevocable trust may, depending on how it is drafted and administered.
Control and benefit retained by the owner: The more the owner can revoke, amend, demand distributions, or otherwise control the trust’s use of the LLC interest, the easier it is for a creditor to argue the interest is still reachable.
Timing and intent of the transfer: Transfers made after a claim arises, or made to keep assets away from known creditors, can be challenged and undone under North Carolina debtor-creditor rules.

What the Statutes Say

N.C. Gen. Stat. Chapter 39C (North Carolina Uniform Voidable Transactions Act) – Allows creditors to challenge certain transfers made to hinder, delay, or defraud creditors, and some transfers made for less than fair value in specified circumstances.

Analysis

Apply the Rule to the Facts: No specific facts are provided, so the outcome turns on trust type and control. If the LLC interest is moved into a standard revocable living trust where the same person remains the trustee and keeps the power to revoke, the transfer usually does not add lawsuit protection because the interest is still treated as accessible to that person’s creditors. If the LLC interest is transferred to an irrevocable trust where an independent trustee controls distributions and the creator cannot demand the asset back, the trust may add protection, but the transfer can still be attacked if done at the wrong time or for the wrong purpose.

Process & Timing

Who acts: The LLC member and the trustee. Where: Primarily through the LLC’s records and operating agreement under North Carolina practice; a lawsuit, if one happens, is typically handled in North Carolina state court (often the Superior Court) in the county with proper venue. What: An assignment of membership interest (and any joinder or admission documents required by the operating agreement), plus trust documents showing the trustee’s authority. When: Before any creditor problems arise is typically safer than transferring after a dispute is brewing.
Update governance: Confirm the operating agreement allows the transfer to a trust and states whether the trust becomes a “member” (with voting/management rights) or only an “assignee” (economic rights only). If the operating agreement is silent or restrictive, amendments or consents may be needed.
Maintain separateness: Keep LLC and trust administration clean: separate bank accounts, proper contracts in the LLC’s name, documented distributions, and correct tax and accounting records. Poor formalities can undermine both LLC liability protection and any trust planning goals.

Exceptions & Pitfalls

Revocable trust misconception: A revocable living trust is often treated as the owner’s property for creditor purposes, so it usually does not create “extra” protection for the owner’s membership interest.
Operating agreement limits: Many operating agreements restrict transfers or limit what a transferee receives. A transfer to a trust can accidentally convert a member into a non-member assignee, which can change voting, management, and buyout rights.
Fraudulent/voidable transfer risk: Moving the interest after a dispute starts, after a demand letter arrives, or when debts are mounting can create litigation risk and possible court-ordered unwinding of the transfer.
Control that defeats the plan: If the trust is labeled “irrevocable” but the creator keeps broad powers (such as the ability to take the asset back or force distributions), a court may still treat the interest as reachable.
Single-member and alter-ego arguments: Some creditor strategies focus on whether an LLC is truly operated as a separate entity. Weak separation (commingling, personal expenses, no records) can create exposure regardless of whether the interest sits in a trust.

Conclusion

In North Carolina, transferring an LLC membership interest into a trust does not automatically add lawsuit protection beyond the LLC itself. A typical revocable living trust usually provides little to no added protection because the owner keeps control and creditors can often reach what the owner can reach. An irrevocable trust may add protection if structured and funded correctly and not done to avoid creditors. The most practical next step is to review the LLC operating agreement and choose the trust structure before any claim arises.

Talk to a Estate Planning Attorney

If a lawsuit risk or creditor concern involves an LLC ownership interest and a trust plan, an estate planning attorney can help compare a revocable trust versus an irrevocable trust, check transfer limits in the operating agreement, and flag timing issues under North Carolina law. 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.