Yes, a trust can own an LLC in Texas. The Secretary of State expressly lists trusts among the entities eligible to be LLC members, right alongside individuals, partnerships, and corporations.1Office of the Texas Secretary of State. Selecting a Business Structure No special filing or approval is required to make it happen. What matters is picking the right kind of trust, moving the interest correctly, and understanding how the IRS will treat the arrangement once it’s in place.
The Legal Basis Is Straightforward
Texas law gives LLCs broad freedom to structure ownership. The company agreement, which is Texas’s term for what other states call an operating agreement, governs the relationships among members, managers, and assignees, and it can be written to accommodate a trust as a member.2State of Texas. Texas Business Organizations Code Chapter 101 A trust member has the same standing as any other member: it can hold economic rights, receive distributions, and vote on company matters where the agreement provides for it.
The complications are not in whether you can do this. They’re in the tax code and in the paperwork.
Revocable or Irrevocable: Pick Before You Transfer
Most people setting this up are choosing between a revocable living trust and an irrevocable trust, and the choice drives nearly everything that follows.
Revocable Living Trust
A revocable trust keeps you in control. You typically act as both trustee and beneficiary during your lifetime, so you can modify the trust, dissolve it, or pull the LLC interest back out. The point of the structure is probate avoidance: when you die, the LLC interest passes to your successor beneficiaries under the trust’s terms without a court proceeding. That keeps the handoff private and quick.
The tradeoff is that a revocable trust offers no creditor protection during your lifetime. Because you can revoke it, courts treat the assets as still yours. If protecting the LLC interest from your personal creditors is the reason you’re considering a trust, a revocable one won’t do it.
Irrevocable Trust
An irrevocable trust flips that arrangement. Once you transfer the LLC interest in, you give up the ability to take it back. An independent trustee manages it, and you generally cannot rewrite the terms. That loss of control is what puts the interest outside the reach of your personal creditors in most situations, and it removes the interest from your taxable estate, which can matter for larger estates.
The cost is flexibility. If the LLC needs restructuring or your circumstances change, you have far less room to maneuver. Courts can also unwind an irrevocable trust created specifically to escape a lawsuit you already knew was coming.
Moving an Existing LLC Interest Into the Trust
The core document is an assignment of membership interest: a written agreement in which you transfer all or part of your interest to the trust. It should identify the trust by its full legal name, name the trustee, describe the percentage being transferred, and state that the trust accepts the obligations tied to that interest under the company agreement.
A few steps make the transfer hold up:
- Amend the company agreement to show the trust as the new member, name the trustee, and spell out the trustee’s authority to act for the trust in LLC matters.
- Get any consents the company agreement requires. Under TBOC Chapter 101, membership interests can be assigned, but the agreement may require other members to approve the transfer before the trust becomes a full voting member rather than only an economic interest holder.2State of Texas. Texas Business Organizations Code Chapter 101
- Document the effective date. That date determines who reports the income for tax purposes.
If the trust will own the interest from the LLC’s formation rather than by later transfer, the trust and trustee information should appear in the certificate of formation where the Secretary of State asks for governing person details.3Texas Secretary of State. Texas Certificate of Formation – Limited Liability Company Form 205
How the IRS Will Tax It
Federal tax treatment depends on whether the trust is a grantor trust or a non-grantor trust, and whether the LLC has one member or more than one.
Grantor Trust
A revocable living trust is almost always a grantor trust. The IRS ignores the trust for income tax purposes and taxes all of its income directly to the grantor.4Office of the Law Revision Counsel. 26 USC 671 – Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners If a grantor trust is the LLC’s only member, the IRS treats the LLC as a disregarded entity. You report the income and expenses on your personal return, on Schedule C or Schedule E, exactly as if you owned the LLC directly.5Internal Revenue Service. Single Member Limited Liability Companies No separate trust return is required.
Non-Grantor Trust
When an irrevocable trust owns the LLC interest and the grantor has given up enough control that grantor trust rules no longer apply, the trust becomes its own taxpayer. The trustee files Form 1041, and beneficiaries receive a Schedule K-1 for their share of income distributed or required to be distributed to them.6Internal Revenue Service. Schedule K-1 (Form 1041) Trust tax brackets compress fast and hit the top federal rate at much lower income levels than individual brackets, so income kept inside the trust gets taxed heavily. Most trustees distribute income to beneficiaries for that reason alone.
Watch Out If the LLC Elected S-Corporation Status
This is where trust-and-LLC planning goes wrong most often. If your LLC has elected S-corporation tax treatment, the IRS limits who can be a shareholder, and only certain trusts qualify.7Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined The three types that can hold S-corp stock are:
- A grantor trust, if the deemed owner is a U.S. citizen or resident. Most revocable living trusts qualify automatically.
- A Qualified Subchapter S Trust (QSST), which must have exactly one income beneficiary, with all trust income currently distributed to that beneficiary. The beneficiary makes the QSST election and is taxed on the trust’s share of S-corp income regardless of actual distributions.
- An Electing Small Business Trust (ESBT), which can have multiple beneficiaries. The S-corp income portion of an ESBT is taxed at the highest individual federal rate, which makes this option costly.
Transferring S-corp-elected LLC interest into an irrevocable trust that does not meet QSST or ESBT requirements terminates the S election retroactively. Confirm the trust’s eligibility before the transfer, not after.
Who Actually Runs the Company
A trust cannot walk into a room and sign a contract. The trustee is the person who exercises the trust’s rights as a member: voting, signing, and making business decisions on behalf of the trust’s interest. Texas LLCs are either member-managed or manager-managed, and the choice must appear in the certificate of formation.1Office of the Texas Secretary of State. Selecting a Business Structure
When listing governing persons, the cleanest approach is to name the trustee as the individual governing person rather than listing the trust itself. That keeps the public record clear about who has authority to act. The company agreement should then spell out exactly what the trustee can do on behalf of the trust: vote on major decisions, approve new members, consent to amendments, and receive distributions. If the trustee changes because of resignation, incapacity, or death, the successor trustee steps in, and both the trust instrument and the company agreement should describe how that transition works so authority doesn’t lapse.
Keep the trust and the LLC separate in practice. Each should have its own records and its own bank accounts. Commingling funds or ignoring LLC formalities gives a court reason to disregard the liability shield you set the LLC up to provide.
Texas Franchise Tax Still Applies
A trust-owned LLC does not escape the Texas franchise tax. It is a privilege tax on taxable entities formed or doing business in Texas, and LLCs are taxable entities regardless of who owns them.8Texas Comptroller of Public Accounts. Franchise Tax The LLC files its own franchise tax report each year with the Comptroller. Whether it owes anything depends on revenue and deductions, but the filing obligation exists even when the amount due is zero.
Federal Beneficial Ownership Reporting
As of March 2025, FinCEN issued an interim final rule exempting all entities created in the United States from beneficial ownership information reporting under the Corporate Transparency Act. Only foreign entities registered to do business in a U.S. state must report.9Financial Crimes Enforcement Network. Beneficial Ownership Information Reporting A Texas LLC owned by a trust is a domestic entity and currently has no FinCEN reporting obligation. FinCEN has indicated further rulemaking is possible, so this exemption could change.