Tag Archives: A.R.S. 14-6101

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Succession Planning for LLCs

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A business is like other types of property. If you die owning them in your personal name, there will need to be a probate. Don’t be like the young lady above, whose parents owned an LLC but failed to specify how the business would be managed when the parents died. Think about it. There might be payroll, bills, customers needing service. And no one is legally authorized to do anything. However, this is easily avoided. This blog will discuss two basic types of succession planning for LLCs.

In Arizona, there is a statute that covers “non-probate transfers.” As an example, if your house is in joint tenancy with your wife (or husband), then when you die, it goes to your spouse. The same thing happens with a checking account. If it’s jointly held, it goes to the joint owner.

You can do the same thing for a limited liability company (or for that matter, any other type of business). But it requires additional documentation that most people don’t do. For a limited liability company, we would rely on A.R.S. 14-6101 (“Nonprobate transfers on death; nontestamentary nature”). That statute basically says that an asset that is owned by the deceased person, and that is controlled by a written instrument, passes to a person the deceased person designates either in the written instrument or in a separate writing.

There are two basic ways to make sure a limited liability company is not tied up in probate after the owner dies. My preference is to have the LLC owned by a revocable trust. The revocable trust then says what happens to the property (including the company) after the owner dies. The second way is to name one or more beneficiaries of the member’s ownership interest in either a company document (such as a Member’s Operating Agreement) or (even simpler yet) on a separate writing like a Beneficiary Designation.

The quickest way to name a beneficiary of your LLC’s membership interest is by signing a form similar to this:

“Effective upon my death, I hereby assign all of my right, title, and interest in __________________, LLC to ______________________.”

Succession planning for LLCs can be tricky. It’s best to have an attorney do this for you because you want to make sure you are having the correct person sign it. I’m saying this because transferring assets can involve community property interests (if you are married) or other issues. If that’s the case, decide whether you want the spouse to sign a waiver of community property interest. It should also be acknowledged by a notary.

If you have any questions, feel free to give us a call at 602-443-4888.


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