What happens to your LLC when you die?
An LLC (Limited Liability Company ) can be an important asset protection and estate planning tool. But what happens to the LLC after your death?
A Limited Liability Company (LLC) is a simple and adaptable business structure allows for limited liability protection and pass-through taxation. As with corporations, an LLC exists as a separate entity from its members. But it is important to remember that the death of an LLC member is treated quite differently than the death of a corporate shareholder.
Because LLCs provide the right to choose its own members, the decedent member is ‘dissociated’ from the LLC. The decedent’s estate and heirs become assignees of the decedent’s interest. Normally an assignee of an LLC interest is prohibited from participating in the LLC’s management unless the operating agreement or articles of organization explicitly state otherwise. Generally, assignees are only entitled to receive distributions of profits or income if the remaining LLC members choose to make them.
Without specific provisions in the operating agreement providing for a liquidating distribution upon death, the LLC member’s estate holds an illiquid asset of questionable value. Consequently, in the absence of adequate estate planning, significant problems can arise upon the death of the LLC member. Let us review your LLC’s operating agreement to make sure the LLC will not cause problems for your heirs in the future.
What to Do Next
Succession planning for an LLC is imperative in determining the fate of a membership interest. The issues resulting from an inadequate preparation can be avoided through careful estate planning and LLC arrangements. The Law Offices of Geoff Wiggs has assisted a variety of business owners with maintenance and succession planning for their LLCs to prevent any future burden to family members and friends.
Contact us today if you are ready to begin taking the steps to protect your Limited Liability Company membership interest.