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Written by : Kirstin Feagler
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hi everyone eric grotewa epg attorneys at law so what happens if you are a part owner of a florida llc and your partner dies okay this is a real question it happens so the the first thing you look at is what is ownership in an llc well it's considered personal property um so just like this cup is personal property or my clothes or personal property your ownership interest in an llc is personal property and so many llc's have what's called an operating agreement now in the operating agreement it could say in the event of a death of one of the owners xyz is going to happen and that would mean that the ownership injury would pass by right of contract that's just like having a beneficiary designation on an uh life insurance policy or on a bank account or on an investment account um and what that means is that when somebody passes it automatically passes according to the terms of the contract now what if they don't have an operating agreement well that's where we need to look at things like probate in short and i won't do this in this video but probate is bad probate is long probit is expensive so if you have a company please have an operating agreement thank you
Thanks for your comment Carrol Zmolek, have a nice day.
- Kirstin Feagler, Staff Member
hi today's question is what happens to an llc when one of the members dies okay so let's just take a simple example you and your partner decide to start a company start a new business create an llc and you're each 50 50 owners of the business you are each 50 50 members of that business and so what happens when one of you dies what happens to the business what happens to the ownership interest of the member who died let's talk about that so in general terms if you have a multi-member llc and by that i just mean an llc with more than one member uh either one that has two or has three or four or more members or owners of the llc what happens to that that llc when one of the members dies in general terms what happens is this if absent any provision in your operating agreement to the contrary what happens is that the membership interest of the deceased member goes to that deceased member's heirs so if the deceased member has a will and it provides in his will that his membership interest goes to a particular person and his family or someone else who's an heir then that's what happens the membership interest goes to that person if a person who is a member of an llc dies and has no will then what happens is by the laws of intestate succession the heirs at law of that person um inherit that deceased person's membership interest so you could have a situation where a dece a deceased member leaves no will and has a spouse a surviving spouse and maybe a number of children some of whom may even be minors and so you could have a situation where that membership interest part of it is owned by the surviving spouse part of it is owned by the deceased members children some of whom may be minors you can see right away that this could pose quite a problem for the operating company that that's still trying to do business after one of the members dies so one of the most important provisions you can put in your operating agreement when you enter into an agreement to to run and operate your company uh is to have a provision in your operating agreement that all the members agree to that provides that upon the death of one of the members the surviving members of the llc or the llc itself purchases that deceased member's interest and it can be typically you would provide that it would be purchased at some agreed upon price or an appraised value or something that is going to result in the deceased members family getting a fair market value for the deceased members interest and provide that the company or the other members that are surviving don't overpay or underpay for that survive for that deceased member's interest so that's typically what you would want to do that way you keep people who you didn't really want to go into business with didn't plan on going into business with from becoming members of your llc by default because one of the members dies one of the ways you want to fund that obligation to buy the deceased members interest is probably through getting key man insurance on all the all the members so that there's a fund of money available to buy that deceased member's interest when he or she dies but but it's very very important to include in your operating agreement some provision for succession in membership interest when a deceased member dies otherwise you're going to be stuck with whoever the beneficiaries are of a deceased member in his or her will or even worse what would be the heirs at law under the laws of intake intestate succession if the deceased member doesn't leave a will so be on guard you've heard today if you have an operating agreement with a multi-member llc make sure you have a provision in there that uh lays out in in good detail what happens if one of the members dies all right that's it for today we'll see you next time
Thanks folklornic your participation is very much appreciated
- Kirstin Feagler
About the author
I've studied special library at Concordia University Ann Arbor in Ann Arbor and I am an expert in citation analysis. I usually feel rejuvenated. My previous job was peace corps worker (volunteer) I held this position for 30 years, I love talking about brazilian jiu-jitsu and electro music. Huge fan of Marion Cotillard I practice canoeing and collect insert cards.
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