Estate Planning for LLCs

Video

Hi folks, it’s Andy Stautz at Stautz Law. I am back for another talk about Indiana estate planning topic. Today we’re talking about estate planning for LLCs: really, for owners of LLCS. And this is kind of becoming increasingly common for small business owners, self-employed people to have to have their business entity set up as an LLC and then needing to do their estate planning and kind of coming up with a way to do that.  

What is an LLC Ownership Interest?

So to start with the very basics: your interest in an LLC is an asset that you own, right? You have equity. If you go out and form an LLC for your company or to be an independent contractor or self-employed… when you form an LLC, you are the owner. Your 100% interest, that’s an asset, right?  

And we can talk about what that’s worth, but it is worth something.  

Does an LLC go through probate?

And unless you do something special, it’s a probate asset. So that means when you’re doing your estate planning, you need to think about the LLC interest, just like a bank account or a house, right? You need a way to figure out who it goes to and how.  

So if you’ve got a will… Well…. You know, usually your will is going to have a “residuary clause” that’s going to say “Everything else I own,” (you know, maybe you give away some tangible property and maybe you deed the house…) again, the residuary clause has “everything else I own, all my other probate assets are distributed such such such”  

Do you want your LLC to go through probate?

OK, so that would catch an LLC interest. But you don’t necessarily want to put your LLC through probate. You might not want to put anything through probate and have to deal with, while the probate estate is being administered, you know your personal representative has to handle either running the business if it’s going to be a continuing operation or winding it up.  

That can be complicated, you know, no one knows your business as well as you do so. It’s a big ask for your representative.  

Estate Planning for Your LLC

So you should probably do some planning in advance.  

One obvious way to do it, of course, is with a trust. You know you can put an LLC interest into a revocable trust.  

You can also make an LLC interest at a payable on death, a transfer on death asset. So we’ve talked in the past about transfer on death deeds for houses, payable on death designations for bank accounts, you know, beneficiary designations on retirement accounts. You’re allowed to do that for an LLC interest as well, in Indiana. That’s in the section of the Indiana Code that deals with business associations. I think it’s Title 23. I’ll link it.  

So one way you could potentially do an LLC administration is by making it transfer on death. That kind of depends on you having an operating agreement. UM, you know, some people like to have, like actual membership certificates to make that transition easier. That’s one option that keeps you away from trust based planning, if for some reason you wanted to do that.  

Other Considerations: Succession Planning for LLCs

As I was saying, you know, if it does, if your LLC interest does go through probate, your personal representatives in charge of keeping the business running or winding it up. You’re going to have the same issue if you transfer it on death, or if you put it in a trust, right? So a separate talk needs to be. OK, not only how do we avoid probate, if avoiding probate is what we’re going to do, [but also] how do we do this long? But also, you know, what’s the succession plan for continuing or winding up the business?  

I think that should be kept for another day. Because that’s a big topic on its own. And that’s a topic that’s more strategy, personal desires and less, you know, legal details.  

It’s easy enough to give enough power [to your trustee or personal representative] to get it done, it’s just thinking about what you want, how it should go.  

That’s our overview for today. We’re going to leave it there. We’re at 5 minutes.  

Conclusion and Key Takeaways

And just as key takeaways: an LLC interest is an asset. It’s a probate asset if you don’t do anything else. You should look at putting it into a trust or making it payable on death if probate avoidance is part of your plan.  

And then we’ll talk in future about how succession planning should work in general and you know, maybe a little more on how administration should work in those in those situations.  

So hope you enjoyed that. It was just a brief overview. If you’ve got more questions, give me a call my phone number and website are right here at the end of the video and I look forward to hearing from you. Have a good one