While creating an estate plan is important for any individual, it is especially significant for small business owners. In California, many small business owners have membership interests in a limited liability company, or LLC. Failing to properly consider these membership interests when creating your estate plan could have negative consequences when it comes time to administer your estate.
6 Possible Consequences If You Do Not Consider Your LLC When Creating an Estate Plan
What can happen if you do not incorporate your LLC Interests into an estate plan? The following are six examples:
- Your loved ones may need to initiate probate proceedings in order to address your membership interest in the LLC, even if all of your other assets successfully avoid probate. This could mean there will be otherwise unnecessary court oversight of the administration of your estate.
- Your estate, heirs, or beneficiaries would receive only an economic interest in your membership interest in the LLC—only the right to receive distributions and no management rights.
- Neither your estate, nor your heirs or beneficiaries, would have any management or voting rights in the LLC.
- Your estate would have only limited rights to inspect the books of the LLC for purposes of settling the estate. This would not be an ongoing right of inspection.
- The remaining members of the LLC would have no fiduciary duty to your estate, your heirs, or your beneficiaries.
- The remaining members of the LLC could amend the operating agreement without having to obtain the consent of the estate, the heirs, or the beneficiaries.
Fortunately, creating an estate plan that addresses your membership interests can avoid many of these potentially negative consequences. We can help. To learn more about how we have helped other clients create the estate plan that addresses their unique needs, we encourage you to check out our client testimonials page today.