The answer depends on your LLC’s governing documents, applicable state law, how you hold the interest and your estate plan. Inheriting the economic value of an LLC interest does not necessarily give someone the same management role or decision-making authority you had.
Illinois and Missouri business owners should plan separately for two questions: who should receive the value of the business, and who should be able to keep it operating.
Start by reading the company agreement
Before relying on a will or trust to address the business, review the operating agreement and any buy-sell or ownership agreements. Look for provisions governing death, incapacity, transfers, admission of members, management and purchases of an owner’s interest.
Missouri’s operating-agreement statute expressly identifies management and transfer restrictions among the subjects an agreement may address. The agreement’s actual language and applicable law determine how those provisions operate. RSMo 347.081.
For a company formed in Illinois or elsewhere, obtain a review under that jurisdiction’s law. An estate plan should not assume it overrides company-level restrictions.
Ownership and management may need different answers
Consider a hypothetical business with two owners. One wants a spouse to receive the financial benefit of the ownership interest but expects the surviving co-owner to manage the company.
That preference raises several planning questions:
- Should the spouse retain an economic interest or receive a buyout?
- Who decides when money may be distributed?
- How would a purchase price be determined?
- Would the company or surviving owner have enough cash to pay it?
- Who can act while the estate or trust administration is underway?
Writing “my business goes to my spouse” does not by itself resolve the company decisions, funding or timing.
Coordinate the estate plan with the business records
Your estate plan should account for your actual interest, not simply the company’s name. Confirm who owns the interest now, what the company’s records show and whether a proposed transfer needs consent or other documentation.
If a trust is part of the plan, review whether and how the interest should be held or transferred. Do not assume signing a trust document alone updates company ownership. Tax classification and eligibility issues may also need review before changing who holds an interest.
For example, S-corporation eligibility restricts permitted shareholders. A proposed trust owner should be evaluated with tax advisers before a transfer involving an S election. IRS S-corporation eligibility guidance.
Plan for interruption during life, too
Death is not the only event that can interrupt a business. A serious illness may leave the owner unable to approve payments or respond to a major customer.
Discuss management succession, financial authority, access procedures and the role of any agent or trustee. Keep the plan consistent with the company’s agreements and the requirements of financial institutions. An informal expectation that a family member will “take over” may leave practical authority unresolved.
A buyout needs a workable funding plan
If the goal is a purchase after death, the agreement should address more than the triggering event. Review who buys, what determines value, when payment is due and where the money comes from.
An insurance policy can be part of that discussion, but ownership, beneficiary arrangements, valuation and tax consequences require coordinated advice. Existing insurance and existing buy-sell documents should be reviewed together rather than assumed to match.
Gather these documents for a review
- Articles of organization and the current operating agreement, including amendments.
- Ownership records and any purchase or transfer documents.
- Buy-sell agreements and relevant insurance information.
- Existing wills, trusts and powers of attorney.
- Significant loans or contracts that may address ownership or control changes.
- Your goals for the family, employees and other owners.
The review should identify where documents agree, where they conflict and which decisions have not yet been made.
Common questions
Will my LLC automatically close when I die?
Do not assume it will automatically close or automatically continue on the terms you intend. The company’s agreements, ownership circumstances and governing law need to be reviewed.
Does a will name the next company manager?
Do not rely on a will alone to establish company management. Coordinate the estate plan with the company’s management and succession provisions.
Should I put the LLC interest in a trust?
That requires a review of the estate-planning goals, transfer restrictions and tax issues. A trust can be part of the solution, but the transfer and company records need proper attention.
Bring the business and estate plan together
A.H.Steinmetz, Ltd. works with Illinois and Missouri business owners on estate planning, corporate governance and ongoing advisory matters. Virtual appointments are available throughout both states.
Schedule a free 15-minute introductory call to discuss how your family and business plans should fit together.