A client recently contacted Nee Law Firm with an interesting scenario that impacted her estate plan and her business. Beth (not her real name) and her husband live in Ohio with their minor children and had developed a full estate plan, which includes a trust, healthcare and financial powers of attorney, and a living will. Beth is also the sole member of an Ohio limited liability company. All seems to be in order. But not quite.
Beth and her family are planning on moving to the west coast in the next 18 or so months. Thankfully, Beth thinks ahead, and she contacted Nee Law Firm to find out what to do. Should she dissolve her LLC and form a new one in WA? Should she create a new estate plan when she settles out west? Can Nee Law Firm continue to help her?
This scenario demonstrates quite plainly the intersection of estate planning and business counseling. Often, these “different” areas of law are very much intertwined. They certainly are for Beth.
In this post, we look at single-member (one owner) LLCs and the impact they have on estate planning. (We’ll look at how this all changes with a multi-member LLC in a future post.)
First, the necessary terminology. An LLC’s owner is called a “member,” and the member’s ownership interest is called a “membership interest.” Simple enough. Here is what is interesting though. A membership interest is actually personal property—like any other personal property. It can be bought, sold, given, and even inherited. So, what does that mean? It means, if you own an LLC, you need to plan what will happen to your membership interest.
Think about what would happen to Beth’s LLC if she passes away without any planning. Who would operate it—who would pay the bills, take care of customers, or wind it down if it couldn’t go on without her? The ability to do any of this requires legal authority. Because Beth was the sole member, it all rested with her. Without her, legally, no one can do what she did. The LLC screeches to a halt, and who knows what financial hardship or ruin that might cause.
If Beth died intestate (without a will or trust), the probate court would need to issue a Letter of Authority to whoever it appointed to administer Beth’s estate. After a few weeks or so, the court would do so. (Doesn’t that seem like a long time for a company to be without a leader?) This person would then run the company…perhaps into the ground. Something similar would happen even if Beth had a will. Beth presumably would have named her executor (the person administering her estate), but otherwise the same process would take place. Time goes by, then someone steps in to run the company. In either case, the situation is only temporary. At some point the administrator or executor would need to pass the corporate reins to the heirs. Then he, she, or they will own the company and (hopefully) figure out a way of running it or dismantling it and getting out whatever value they can. Sounds messy—and it sure can be.
But here’s the good news. Proper planning can create clear skies that transfer the LLC upon the member’s death to someone without going through probate—hence, no lapse in time where the LLC is leaderless, no hopeful thinking that the administrator or executor can manage things or that the heirs can figure out what to do with it (and not want to strangle each other in the process).
Have you been considering setting up a business entity like an LLC to transact your business? Have you ensured that your labor won’t be wasted and perhaps your most valuable asset won’t go up in smoke when you can’t be there?
Contact Nee Law Firm TODAY for your free consultation! www.neelawfirm.com, 440-793-7720, matt@neelawfirm.com