A business issue that is rarely considered but has inevitable consequences.
As a business owner, you know this old adage is true: the only certainties in life are death and taxes. Death is almost always a complicated event for the survivors, who have not only emotional but also logistical considerations to manage. However, when an owner (typically called a member) of a limited liability company (LLC) dies, it exacerbates the difficulties for the surviving members. In addition to bearing the loss, they must determine whether the LLC can or even should continue.
These are just a handful of the issues that should be considered as part of an LLC business succession plan. Failure to address these issues and implement the proper documentation could result in conflict within the business, conflict within the family, or even the closing of the business—which may be completely opposed to the members’ original intent.
To truly answer what happens to an LLC after a member dies, you must consider a number of factors, including the language of the company’s operating agreement, the state law that governs the entity, and the decedent’s personal estate planning (if any).
LLCs provide substantial flexibility in addressing matters of ownership, management, and financial rights, which are primarily governed by a contract called the operating agreement, which can create complexities when determining the outcome of an LLC member’s death. The execution of an operating agreement is not mandated by Wyoming state law, but it is often the most critical component when dealing with an LLC member’s death. In the absence of an operating agreement specifying the members’ intentions about what should happen upon their death, the surviving members and the deceased member’s heirs must rely primarily on the default rules under state law. Although an operating agreement could be silent on the matter, for optimal control and intentionality, the members should make these decisions in advance and carefully document them in their LLC operating agreement, as well as their personal estate planning documents. In addition, it is crucial to ensure that there are no conflicting provisions in these documents that could create ambiguity about a member’s wishes.
The Wyoming Probate Process
When a member fails to address business succession planning matters and then subsequently dies, the member’s interest in the LLC is subject to the Wyoming probate process before the heirs can receive their inheritance. Frequently probating a business interest includes:
- Appraising the business;
- Filing the valuation of the business (open to the public);
- Paying statutory fees (approximately 4.5% – 5% of the estate’s total value); and
- The heirs waiting over a year to receive their inheritance.
You can protect your business legacy by implementing business succession planning. Do not hesitate to reach out to us: we understand the level of care and diligence required to create and implement a business succession plan designed to address your unique concerns. You can rely on our experience helping business owners safeguard their legacies and providing peace of mind for partners and family members during their most difficult times.