If you own an LLC or an interest in an LLC (limited liability company), what happens to it when you die will depend on what you did to put an estate plan together and if it specifically includes your LLC.
Transferring Your Interest in the LLC
If you transfer your interest in your LLC while you are still alive, the recipient of the transfer will become an assignee for purposes of the Arizona LLC Act, which means the recipient only has rights to any distributions made by the LLC. Unless the LLC operating agreement indicates otherwise, the other members of the LLC must make a unanimous vote and accept the assignee as an actual member of the LLC with power to manage.
Getting a Divorce
If a member of an LLC is getting a divorce in Arizona and the business interest was acquired during the marriage (except for by gift or inheritance), Arizona law presumes the LLC business interest is the property of both the member and the member's spouse.
An Arizona LLC operating agreement can specifically provide for what happens if one of the LLC members gets divorced. These agreements typically indicate whether the member who is undergoing a divorce must acquire the spouse's interest in the LLC or allow the other members to purchase the spouse's interest. In order for this kind of provision in an operating agreement to obtain the desired result, both the spouse's and the members must sign the operating agreement and consent to be bound by the agreement.
Withdrawal from the LLC
An operating agreement may describe whether an LLCs members must purchase the interest of a withdrawing member, as well as the process through which the LLC must go in order to determine the purchase price. However, if it is not in the operating agreement, ARS § 29-734 does not require the withdrawing member to be compensated; rather, if the withdrawing member does not abide by the provisions included in the operating agreement, the withdrawing member may be liable for damages.
Death of a Member of the LLC
If a member of the LLC dies and there isn't an operating agreement, any recipient of the LLC member interest is treated as an assignee. This means they are entitled to distributions made by the LLC, but they do not have a membership interest without more. If an operating agreement exists, it can specify what to do when one of the LLC members dies. These options may include a buyout of the deceased member's interest if the heir in question is not suited for the vacant position. Transfer of the interest will vary depending on whether the member who passed had a will, died intestate or funded a revocable living trust with his interest in the LLC.
If you want to transfer your membership interest in an LLC, there are some different ways to go about it. If an operating agreement exists, you must abide by the provisions of the operating agreement. If not, Arizona's LLC Act will control in Arizona.
What Happens to My Business Interest When I'm Gone?