The current popularity of using limited liability companies and limited liability partnerships, along with other similar business entities, for asset protection and estate planning brings many benefits but also some easy to fall for pitfalls. Standard provisions in LLC Operating Agreements can cause unintended results when LLC interests are transferred at the member’s death. Whether transferred by will or trust, standard provisions often result in the transferee being treated as a mere assignee, and receiving only economic rights, but not management rights. It is important that Operating Agreements are carefully reviewed and drafted to ensure the intended rights are transferred, such as including some recipients like children or a spouse as full substitute members who receive both ownership interests, while others like creditors only receive economic rights by remaining mere assignees.
See Edwin Morrow, Beware of Standard Provisions in LP & LLC Documents, Unltimate Estate Planner, Jan. 1, 2015.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
