How to Name a Beneficiary for Your LLC
Q: I want my wife to be the beneficiary for my LLC in case of my death. How do I name her as my beneficiary?
Thank you to a customer from Pennsylvania for that great question! The beneficiary for your LLC is the person who will inherit your membership interest in case of your death. Your LLC could be one of your most valuable assets, so it’s a good idea to name a beneficiary so that this asset will go to the right person (or people) after you’re gone. Plus, your beneficiary could potentially continue your business after you pass away. You can name a beneficiary for your LLC by amending your LLC operating agreement. We’ll walk you through the process.
1. Choose Your Beneficiary
First, you should choose who your beneficiary (or beneficiaries) will be. Inform this person that they are your beneficiary. If your beneficiary will take over your business operations in the case of your death, make sure they are willing and prepared to take on this responsibility. If your LLC has multiple members, each member should name a beneficiary for their share of the membership interest.
2. Amend Your LLC Operating Agreement
Next, you will need to add a provision to your operating agreement naming a beneficiary. The provision should specify what percentage of the membership interest will be transferred to each beneficiary. Your operating agreement is an internal document, so you don’t need to submit it to a state agency.
Transferring membership interest to a beneficiary gives the beneficiary the same rights and powers that you had in the LLC. To amend your operating agreement, follow your operating agreement’s policy for how it can be amended. For most LLCs, the process for amending an operating agreement looks like this:
- Hold a meeting of all members
- Draft a member resolution to add a beneficiary
- Vote on the resolution
- Pass the resolution (with majority approval)
- Keep the resolution with your LLC records
Of course, if you are the sole owner of your LLC, you don’t need to hold a formal vote. You can simply make the change to your operating agreement.
What if I don’t have an operating agreement?
If you don’t already have an operating agreement, it’s a good idea to create one for your LLC. An operating agreement formalizes the rules and procedures of an LLC. Having a strong operating agreement can help your business avoid confusion and conflict down the road, and it’s a legal requirement in some states.
However, in the absence of an operating agreement, many states will allow you to name a beneficiary for your LLC by creating a transfer-on-death document. This is a legal document that you can use to transfer your membership interest to a beneficiary if you pass away. Each state has its own laws for transfer-on-death designations, so you will need to do some research to see if this is possible in your state.
Download a state-specific LLC operating agreement template.
What if my operating agreement doesn’t allow for membership interest transfer?
Some operating agreements put restrictions on the circumstances in which membership interest can be transferred or don’t allow you to transfer membership interest at all. If that’s true for your LLC, you can still pass on your membership interest by leaving it to your beneficiary in your will. In this case, the other LLC members can buy out the beneficiary’s membership interest if the benficiary wants to sell. Or, if the beneficiary wants to keep the membership interest, the operating agreement might state that the beneficiary is entitled to their share of the profits but will not have control over how the LLC is managed.
Learn more about Managing Assets After an LLC Owner Dies.
