My brother's business partner died. It was an LLC. They each shared equal interest in the LLC (50/50). They purchased a commercial building before he died. His partner willed his "property" to his wife (it wasn't clarified whether the property he is willing to her is real or personal).
Is the LLC considered "property"? If so, does my brothers partners wife inherit the building they just purchased. If not, is she entitled to the commercial building being that it is "property"? Again... the will said "property" and didn't clarify real or personal.
A proper analysis would require looking at the operating agreement and the title to the property and the will. Probably the wife inherits the LLC membership interest. Spending a few dollars with an attorney now will save all parties time and aggrevation on a go-forward basis.
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Yes, the deceased member's membership interest in the LLC is considered "property" of the decedent. Most likely, the decedent's estate will need to be probated. The wife would inherit the membership interest in the LLC. She would not inherit ownership in the building itself if the title in the building is held in the LLC.
Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, consult your own attorney.
A member to an LLC has a "membership interest." Unless the operating agreement of the LLC provides otherwise (e.g. right of first refusal), a member to an LLC inherits the membership interest of the deceased partner, and not the assets of the LLC. Your brother's wife should have an attorney review the operating agreement of the LLC, and the will.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed to Practice in the United States Tax Court
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is [email protected]
The "partner's" interest in the LLC is property. It is in the same general catagory of property as stock or a bond. It is called intangible personal property. You can't really touch it, which is why its intangible. A piece of silver would also be personal property, but it would be tangible since you can touch it, pick it up and hold it in your hand(s).
The previous answer is correct - you can't really tell what the wife inherited without seeing the operating agreement. It may well be that the operating agreement spells out the rights of the members, and that they either (1) can or (2) cannot transfer their interests. If the can transfer their interests, there may also be restrictions on who they can transfer to. Often operating agreements will permit a transfer to a spouse or descendants, but no one else. I would say, though, that the majority of LLCs do not have provisions permitting transfers. So then what happens?
The membership interest is like a bunch of sticks, not just a log. It is made up of various rights, which each might be represented by a stick. One right included in the membership is the right to vote. Another is the right to receive any distributions which the LLC might make.
The right to receive distributions is called an "economic interest."
If there is no provision which permits the transfer of the membership (all the rights) to the partner's wife, she can't inherit al the rights. She can, however, inherit the Economic Interest so she will be entitled to receive whatever distributions the LLC might make. She would also be entitled to receive her share of the value of the LLC if the whole thing is liquidated and distributed. BUT the right to vote would simply disappear, leaving your brother as the only voting member.
I've tried to make this simple, but I know its not. You need to discuss this with a business attorney. You need to provide a copy of the operating agreement if there is one, and of any buy/sell agreement which may exist. If there are no written agreements, look for other evidence - is there insurance on both member's lives? To who is it payable? This could be evidence of a buy/sell agreement, but it wouldn't be controlling absent an actual agreement.
There are lots of reasons this question needs the assistance of an attorney.
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