When a limited liability company (LLC) member dies, the LLC will continue to operate as long as surviving members. The deceased member's representative must file documents with the state to change the membership records of the LLC.
On the other hand, If the deceased member was the only person and owner of the LLC and had no significant family members, the LLC can be dissolved.
A Deceased Member’s Interest in an LLC
If the LLC is operating with two or more members, then under state law, the interest of a deceased member will be purchased by the living members.
If only two LLC members are left alive, they must buy the deceased member's entire limited liability company interest. The LLC's operating agreement may have different terms.
A member's interest in an LLC may also pass to their heirs, legatees, or estate in accordance with the operating agreement and applicable law of intestate succession.
How Do You Transfer an LLC After Death?
Transferring an LLC is difficult. It requires the unanimous consent of all other members.
When operating, you can spell it out in the operating agreement.
If operating through a written operating agreement, you should have explicit language about the transfer of interest or membership upon death or disability/incapacity to clarify how to move forward for the remaining members.
State law will dictate how membership interests are transferred upon death when operating without a written agreement.
The operating agreement should include the member's operating responsibilities to keep the business running and their rights in the context of passing away.
An operating agreement including terms for transferring interest/membership upon death will make a smooth transition and avoid confusion.
If operating without an operating agreement and the member's operating responsibilities and rights go unaddressed, then chances are we'll be operating under state law.
How Do You Inherit an LLC
The first question you need to ask yourself is whether you're inheriting an LLC.
If your deceased loved one was operating as a sole proprietor, then what you're inheriting is that business itself.
However, if they were operating as something else, like an LLC or partnership, then what's getting passed on to you is the ownership of the operating company.
In that case, you'll need to consult the operating agreement of the LLC.
Does it state the formula for how the interest of a deceased member is supposed to pass?
If not, then the default method of distributing ownership is according to state law.
Similar Article: How to Remove a Member From Your LLC
Can You Inherit a Single-Member LLC?
The answer to this question depends on whether you can inherit a member interest in an LLC when there is no will.
It also depends on the operating agreement of the single-member LLC (SMLLC) since it can be designed to prevent member interest inheritance.
The member's next of kin may not inherit the member's interest if they are not listed as a member or as a member's beneficiary in the LLC operating agreement.
The member should consider adding these beneficiaries to the LLC and creating an estate plan that identifies their desire for future beneficiaries to receive members' membership interest.
Who Inherits When There Is No Will?
When a limited liability company member dies, the deceased member's interest passes to the deceased member's heirs.
However, if there is no will specifying how an inheritance should be distributed among potential beneficiaries, investors can control how assets are divided up.
To avoid this situation where they have to relinquish inherited member's interest in the LLC, the member should draft a will.
Though a member may want to keep their assets private, their death can be announced through public records.
Does an LLC Go Through Probate?
Suppose an LLC member dies with no designated beneficiary. In that case, the member will leave behind a probated estate.
Their member ownership interest in the LLC will be transferred down to others using the laws of intestacy (the state's rules for passing property when someone died without a valid will.)
If a member does leave a will, the member may clearly state how they would like their member ownership interest to be passed on.
This can avoid probate. It may also prevent any member ownership interest from passing down to the member's next of kin.
It states that they are not heirs to the member's property or member's member ownership interest.
Does LLC Have a Right to Survivorship?
No, LLC does not have the right to survivorship. However, it can be provided in the operating agreement or if all members agree to.
Who Are the Beneficiaries of an LLC?
Members are the primary beneficiaries of an LLC, but it doesn't have to be all the time.
A member beneficiary does not have to be one of the members, but they are typically the spouse or children of a deceased member.
Members can also choose to benefit charities, family members, friends, etc., by designating them as beneficiaries.