[WSBAPT] LLC vs. Will contrary provision

[Josh Grant]

Thanks Rick
  Good point.  Everyone is (currently) on very friendly terms, so I will shoot them a consent form.
I am going to try and talk them out of their suggested plan.  One member has economic issues.

Josh

Joshua F. Grant

P. O. Box 619
Wilbur, WA 99185
509 647 5578

From: Rick Hoss 
Sent: Thursday, December 13, 2018 3:55 PM
To: 'WSBA Probate & Trust Listserv' 
Subject: Re: [WSBAPT] LLC vs. Will contrary provision

Josh,

A member personal property interest in LLC units is held subject to the LLC operating agreement. Operating agreements usually restrict transfers of units, and often have a “pick your member” provision that requires unanimous consent of the remaining members to allow a new member.  If the decedent leaves his units of ownership to a person not allowed under the operating agreement, that person becomes an economic interest holder, not entitled to vote, inspect records and only allowed to distributions from the LLC when made. If there is an economic interest holder it may be unlikely the LLC will make distributions. 

 

Each member should make other arrangements for their heirs since inheriting an economic interest might have little value, like when the existing members may not unanimously consent to having a new member. These provisions can be harsh (like forcing heirs out of their long time homes) so sometimes you see individual members, or the LLC, acquire term life insurance, or make other arrangements, so the heirs receive something of value.

 

Consider that one or more of the members may have creditor issues – the unanimous consent provision makes getting a charging order against the LLC unit holder debtor difficult and renders the creditor an economic interest holder. So the key is in the Operating Agreement terms, and these are usually drafted with care to address specific client plans.

 

I like to include another provision in Operating Agreements that deals with one member acquiring another’s units, calling for a Shotgun buyout. One member sets the price, not knowing whether she will be a buyer or seller, and the other member(s) decides whether to buy or sell at that price. This won’t work for your client but is useful in many contexts.

 

You start by saying you have 5 clients – multiple clients with differing concerns require a detailed consent to potential for conflict of interest. I try hard to just work for one client when possible but take great care when not. And when you have 5 sets of client heirs, 4 sets of whom will receive nothing and might have to move from their homes, it is worth spending extra time and getting the client consents carefully documented.

Rick

 

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Josh Grant
Sent: Thursday, December 13, 2018 2:18 PM
To: wsbar trust
Subject: [WSBAPT] LLC vs. Will contrary provision

 

I have  clients who have inherited real property.  They are putting it into a LLC.  4 out of 5 of the clients reside in different portions of the real property.  Regarding the termination upon death provision in the LLC; they are wanting it to simply say: as each member dies, their units can not be sold except for $1.00 to the LLC and the remaining members will equally own their shares.  When there is only one remaining member, that surviving member will own 100%.  I have never seen this with a LLC.  It would also have to preclude rights of members to sell their units to third parties.

I am wondering what will happen if one of them makes out a will that says “I give my units in LLC to my kids/”

Anyone ever do this?

If so any form language?

Any other problems besides the challenge regarding testamentary disposition?

Thanks

Josh

Joshua F. Grant

P. O. Box 619
Wilbur, WA 99185
509 647 5578



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