Q: Can I take LLC membership title as community property from trust in CA?

A: It is a common mistake for a beneficiary (the person who benefits from a trust by receiving an inheritance) to believe that an asset belongs to them even though it is still located in another person’s trust. But, while the asset is in another person’s trust, the asset belongs to the trust. It does not belong to a beneficiary until the asset is removed from the trust and handed to the beneficiary. Further, all assets must be removed from a trust by the currently serving Trustee (the title of the person who has the legal right to handle assets in a trust), but the Trustee must follow the terms of the trust as to how that asset may be taken out of the trust. So, even if a beneficiary wanted to change title or swap assets with another beneficiary, they cannot do so until the asset is removed from the trust and handed to them. That’s because beneficiaries cannot control or change an asset they don’t own. And, again, the beneficiary doesn’t own an asset until it is taken out of the trust and given to them by the trustee. After that point, the beneficiary can do whatever they want with the asset so long as it is legal or, in the case of a corporation or partnership, so long as it complies with the Bylaws and Buy-Sell or Operating Agreement. I hope that helps!

A: In California, you generally can take title to LLC membership interests as community property directly from a trust, provided several conditions are met. Since the trust names you as beneficiary without restrictions on how you hold title, and the LLC operating agreement only requires member approval for transfers without limiting title format, you have a strong foundation. The key is obtaining written consent from all LLC members for the transfer, as required by the operating agreement.

When executing this transfer, you'll need a properly drafted assignment and assumption agreement that explicitly states you're taking title as community property with your spouse. This document should reference both the trust distribution and the community property designation. Your spouse will need to be a party to this agreement, acknowledging their rights and responsibilities as a co-owner of the membership interest.

It's worth noting that trust distributions involving LLC interests can have complex legal and tax implications that vary based on specific circumstances. While your CPA has advised on tax matters, having an attorney review your proposed approach is prudent before executing any documents. California's community property laws interact with business entity regulations in nuanced ways, so proper documentation is essential to protect both your interests and avoid potential disputes with other LLC members.