Montana Trust Laws and Vehicles Owned By LLCs: What You Need to Know

We’ve talked a whole lot about Montana LLCs on the Dirt Legal blog over the years, which makes sense: they are a core tenant of our industry. This article is going to dive even deeper.

There are laws relating to owning vehicles through an LLC, in Montana or otherwise, known as trust laws and asset holding laws. That is what you are doing the second your car goes into a Montana LLC or an LLC anywhere else: holding an asset. Yes, you are essentially the business in this scenario, but it falls under a different set of rules when it’s the business owning the car and not you directly.

Let’s look at this through the lens of your vehicle being owned by a business, like the Montana LLC packages we offer at Dirt Legal. Whether you have already purchased our services or you're considering it, you will leave here with a better understanding of trust laws in Montana as related to owning vehicles under a Montana LLC.

What is a Trust?

According to the fine people at Investopedia: 

“A trust is a legal entity with separate and distinct rights, similar to a person or corporation. In a trust, a party known as a trustor gives another party, the trustee, the right to hold title to and manage property or assets for the benefit of a third party, the beneficiary.

Trusts can be established to provide legal protection for the trustor’s assets to ensure they are distributed according to their wishes. Additionally, trusts can save time, reduce paperwork, and sometimes reduce inheritance or estate taxes.”

So, the trust is a fiduciary relationship where the trustor (owner) gives another trusted party, the trustee, the right to hold a title. In the realm of what we are talking about here, that would be the title to cars, trucks, motorcycles, RVs, or whatever else you have in your Montana LLC.

Trusts are financial instruments that are created by settlors (the owner or trustor and an attorney). The trustor is creating a trust to show how their assets are to be distributed. Most people are familiar with trusts in terms of how the trustor's money will be managed and distributed, either while they are still alive or after death. 

Generally, we think of trusts as a way to protect assets from excess taxation and from creditors, particularly after death. And there is no reason this is restricted solely to cash money or physical properties, especially if the trustor has a collection of vehicles they wish to protect.

What are the differences between Personal and Business Trusts?

The basic premise of a trust remains the same whether it is business-related or a personal trust. 

There are a few different types of trusts that we’ll talk about here:

• Living Trust

• Testamentary Trust

• Revocable Trust

• Irrevocable Trust

• Funded Trust

• Unfunded Trust

• Personal Trust

Living & Testamentary Trusts

A living trust is just as it sounds: it is a written document in which an individual’s assets are given a trust for that individual’s own use during their lifetime. However, part of the living trust still includes how assets will be transferred at the time of their death. 

A testamentary is a will trust. It provides specifics on exactly how the trustor’s assets will be distributed upon their death. Of course, this can be any asset they want it to be. A classic collection of vintage Triumph motorcycles? You got it.

Revocable & Irrevocable Trusts

According to the American Bar Association, a revocable trust is one that can be changed and/or terminated by the trustor as they see fit, whereas an irrevocable trust is one that is pretty well set in stone. 

But it’s actually a little more difficult than that. The irrevocable trust now contains assets that are permanently removed from the trustor’s possession. They cannot take the assets back once they have put those possessions in the trust. 

Funded & Unfunded Trusts

As the names suggest, a funded trust is one that has assets put into the trust, while an unfunded trust is nothing more than the legal framework. However, they can become funded when the trustor dies. Overall, an unfunded trust is not advisable in our context.

Personal Trusts

Now we get down to the brass tacks: personal trusts. In regard to what we do at Dirt Legal with Montana LLC titling and registration, a personal trust is the most useful trust. 

In a personal trust, the trustor is also the beneficiary. Personal trusts are granted the authority to buy, sell, hold, and even manage property for the trustor. Property like vehicles.

How do vehicles change the equation?

Since trusts are used for different purposes, the rules differ somewhat. Now, one benefit of a trust is that you do not need to file income tax on the asset if it is not earning income, which it shouldn’t since the asset(s) are static. It would generally be if the assets are accruing investment earnings that you would need to do that. In this case, a revocable trust would be the financial vehicle used to protect the assets.

Here are some additional things to bear in mind if you choose to have a trust acting as the owner of your vehicles in your stead.

• The trust is now the liable party in the event that a vehicle is involved in an accident, which now exposes any or all other assets in the trust to liability claims. According to the law firm of Capell & Howard, if the insurance doesn’t cover the entirety of the claim, the other assets in the trust could be in serious jeopardy. Of course, since you already owned the vehicle anyway, these issues might not be a major concern.

• Real problems can crop up when the trustor has passed away, and the revocable trust has now become an irrevocable trust. An accident involving the trust-owned vehicle can place the remaining assets in the trust at risk, including any cash or investments held by the trust. In plain terms, this can work over whoever else would be the beneficiaries.

• It may not go without saying that selling a vehicle that is owned by a Montana LLC or a trust is not as simple as selling a vehicle normally would be. Things get especially complicated when you want to sell the business as a whole with the vehicles involved. We have written more about that topic here, and in short, we advise seeking legal counsel if and when you decide to take those steps.

How to create a Trust in Montana

The rules for setting up a trust don’t change all that much from state to state. Here are the basic steps necessary to set up your living trust in Montana:

1. Decide whether you need an individual or a joint trust. Individual is fine if you are single, but you will probably want a joint trust if you are married. This is not hard and fast; a married couple can still maintain two separate and individual trusts. Up to you.

2. Make an inventory of what you want to put in the trust, remaining cognizant of what we talked about in the previous paragraphs. Do you want a bunch of cash in there, along with vehicles, in the event that something happens and the trust is liable? 

3. Find a trustee to handle the trust. Generally, you yourself may act as trustee while alive, but you must have a successor named in writing to handle the trust after you die. 

4. Hire an attorney who is licensed in Montana to create the trust. They will draft up the trust document, and they should understand how the Montana trust process works, saving you from pitfalls. 

5. Sign the trust paperwork in the presence of a notary public. 

6. The trust is now ready to fund with whichever assets you choose. In this case, it could be one vehicle or an entire collection. It is entirely up to you. The trusted experts at Dirt Legal can handle getting your vehicles into the trust at this time. Learn more.

I already have a Montana LLC. Are there additional advantages to Business Trusts?

There are some advantages to having a business trust in Montana, although they may not be all that important to an individual. But if you are planning on using this LLC as a business or to hold a variety of assets, trusts allow for a customizable distribution of rights and responsibilities among the named trustees.

Business trusts also are significantly more private than LLCs. There is no legal requirement for the public disclosure of the identities of the participants, whereas LLCs are generally known for allowing the public to view the internal workings of the business to a certain extent. 

None of these are terribly significant if you are an individual who simply wants to protect your assets, for example from probate as you hand them down after your death. If that is your concern, an individual living trust is the way to go, hands down.

Make an informed decision

This article is intended only as a primer on the basic premise of how a trust can be structured, some of the different types of trusts, and how a person considering parking a vehicle or other assets in a Montana LLC might consider a trust. We are not attorneys, so do not take any of this as legal advice. You should always consult an attorney who is licensed in Montana to talk about trusts with you.

With that said, if you are ready to start the registration process in Montana, make sure to take a look at our extensive Montana LLC knowledge base. Whether you have a single asset to title and register or an entire collection of vehicles, we can help. We have helped tens of thousands of people with our thorough and comprehensive Montana LLC packages. Backed by our 100% Money Back Guarantee, we’ll get your vehicle(s) into an LLC in Montana on your behalf. Take the first steps today or contact our team to learn more.