Your parent built a business, put it in a revocable living trust, and named you successor trustee. The good news is that a properly funded trust keeps the company out of probate. The harder news is that holding the company in trust does not automatically put you in charge of it. What you can actually do depends on paperwork that is easy to overlook until the owner is gone.
A successor trustee who treats the company like just another account can freeze operations, breach fiduciary duties or start a family lawsuit. Here is what to check first, and where trustees get into trouble.
First Question: Is the Trust a Member or Only an Assignee?
A Michigan LLC is owned through membership interests, which are personal property and can be held by a trust (MCL 450.4504(1)). But Michigan’s LLC Act separates the right to money from the right to manage. Unless the operating agreement says otherwise, an assignment of a membership interest by itself gives only the right to distributions, not voting or management rights (MCL 450.4505(2)). In an LLC with more than one member, an assignee becomes a member only on a unanimous vote of the members entitled to vote, unless the operating agreement provides another path (MCL 450.4506(1)).
So before anything else, read three documents together:
- The trust agreement, including any provisions about business interests.
- The LLC’s operating agreement, including transfer restrictions and any buy-sell terms triggered by death.
- The assignment that moved the interest into the trust, and any record showing the trust was admitted as a member.
If the assignment was never signed, the interest may still be in your parent’s name and may have to pass through probate first. If it was signed but the trust was never admitted as a member, you may hold the economic rights without the vote.
Owning the business through the trust and controlling it are two different things, and the paperwork decides which one you actually have.
Who Runs the Company the Morning After
When the founder was the sole manager, day-to-day authority does not pass automatically to the successor trustee. Payroll, vendor payments, bank signature authority and customer contracts can stall within days. Check whether the operating agreement names a successor manager.
If it does not and the trust owns the entire company, the responsibility falls on you. When a trust is the sole owner of an enterprise, the trustee must elect or appoint directors or other managers to run it in the best interests of the trust beneficiaries (MCL 700.7802(6)). Every vote you cast as trustee must serve the beneficiaries, not you personally.
Keep It, Sell It or Wind It Down
Michigan gives trustees broad authority to continue a business, change its form and hire accountants, appraisers and other professionals to help (MCL 700.7817). But the prudent investor rule still applies to a family company, including the duty to diversify unless special circumstances justify keeping a concentrated holding (MCL 700.1504).
Two things protect a trustee who decides to keep the business. First, the trust terms can authorize holding it, and a term relieving the trustee of liability for retaining a particular asset or failing to diversify is enforceable (MCL 700.7908(2)). Second, a trustee’s decisions are judged on the facts when they were made, not by hindsight (MCL 700.1509). A documented valuation, professional advice and a written rationale are what that standard rewards.
When the Trustee Also Works in the Business
One of the hardest situations is the child who runs the company serving as trustee for siblings who do not. A transaction affected by a substantial conflict between the trustee’s personal and fiduciary interests is voidable by an affected beneficiary, and a conflict is presumed when the trustee deals with a family member or with an enterprise in which the trustee has an interest (MCL 700.7802(2)-(3)).
Setting your own salary, buying out a sibling or leasing company property to yourself can all fall into that territory. The safer routes are authorization in the trust terms, written beneficiary consent, or court approval after notice. The probate court can also instruct a trustee on a disputed question before the trustee acts (MCL 700.7201(3)). Using those routes before the transaction is far easier than defending it afterward.
When the time comes to distribute, remember that the operating agreement’s transfer restrictions still apply, so a beneficiary who receives an interest may become only an assignee unless admitted as a member. If the company is taxed as an S corporation, the trust must also fit federal rules for S corporation shareholders, so bring in the company’s CPA early.
Frequently Asked Questions About Trusts That Own a Michigan LLC
Not if the membership interest was assigned to the trust during the owner’s life. The successor trustee administers it under the trust terms without a probate case. If the interest was never assigned, it may have to pass through the probate estate before it reaches the trust.
A trustee may receive reasonable compensation for serving as trustee, but a separate salary or employment deal with the company the trust owns is a conflict of interest unless the trust terms authorize it, the beneficiaries consent, or the court approves it.
Yes. Michigan does not require it, but LLC Act rules, fiduciary duties and tax elections all land on the trustee at once, and a misstep can cost the business or expose the trustee personally. The Trust Code allows a trustee to hire an attorney and pay reasonable compensation for necessary legal services.
Protect the Business and Yourself From Day One
The first weeks of administering a trust that holds a company often decide whether the business keeps running and whether the trustee stays protected. We start by reading the trust, the operating agreement and the assignment together, so you know what authority you actually have before you act on it. Our trust administration attorneys then guide successor trustees through management transitions, family conflicts and distributions, and our probate team steps in when a dispute puts the trustee’s decisions on the line.
Before any big decision, read how to protect yourself from a breach of fiduciary duty claim. If you are still planning, pair your trust with a business succession plan so your successor inherits clear authority instead of a puzzle.
Call Boroja, Bernier & Associates PLLC at (586) 991-7611 to schedule a consultation.
About the Author
Daniel Boroja, Esq. is a founding partner of Boroja, Bernier & Associates PLLC and leads the firm’s estate planning, probate and trust administration, and elder law practice. He has practiced Michigan estate and trust law since 2013 (Bar No. P77079).
