Transfer Your Interest in an LLC to a Family Member
Jonathan: Hi, my name is Jonathan Barlow. I’m a partner attorney at Clear Counsel Law Group. We handle estate planning and we handle business planning. The question we have today that I’m going to answer blends these two areas in one question. The question is, how can I transfer an ownership interest in my LLC to a family member? There’s basically two times that you might think about a transform happening. One, while you’re alive, and two, after you pass away.
First, if you think about wanting to transfer an ownership interest while you’re alive, I highly recommend that you do this as formally as possible to make it very clear that you did both intend to transfer the interest and that you actually did transfer the interest. That can be done formally through a simple document. We call it an assignment of ownership interest. In that document, you simply recite that you are an owner of the business in such and such a percentage, and that you hereby or give such and such as percentage or amount to the person you want to give it to. Sign it, date it, have it notarized. That actually acts as a formal transfer of ownership interest. It formalizes it and makes it very clear what your intent was.
After you pass away, if you have an intent to transfer the interest after you have died, you want to make sure you also do that very formally. You could that either in a will or in a trust. If you do it through your will you’re probably going to have to … or your family member will have to go through probate in order to get their interest in your business, which could delay the operation of the business while that process is happening. The best way to plan for an after-you-die transfer is through a trust.
In your trust, just like any other asset, you can specifically list 25% of my business or half of the business or all of the business to be transferred to my son John when I pass away. That can happen pretty easily and quickly after you die through the use of a trust. Those are the two best ways to do that and transfer those ownership interests. Brian has a question about this.
Brian: What happens to your LLC if it goes into probate?
Jonathan: That’s a good question. If the LLC, which becomes an asset of your estate when you die and in order to get it transferred out of your estate to whomever’s going to inherit it, it goes through probate, what happens to the business? That’s an interesting question. If there’s not already other business managers operating the business, if the person who passed away is the only manager, the personal representative or executor of the estate can be appointed with authority to continue the business of the LLC. The court would grant that person, the executor, authority to step in the shoes of the manager of the business and continue with the operations of the business while the probate is occurring until it is transferred out of the probate estate to the heirs.
That may or may not be a good idea. That’s also a reason why you want to think about using a trust to avoid that potential process. Because that executor may not have the business acumen that you would want them to have in order to operate your business. Thus again, using it through a trust allows you to be much more formal and specific about how you want that ownership interest to transfer, and the management interest as well. If you have questions about your LLC, about your ownership interests, how to transfer those, I encourage you to give me a call or any of the attorneys here at Clear Counsel Law Group, and we’ll do our best to answer your questions.