The question of what happens to an LLC when someone dies can be an important one. Fortunately, there are some clear steps you can take to ensure the legal paperwork is properly addressed and the business remains in good standing. We’ll explain what documents you need to fill out and how to handle the transition process.
Determine Whether the Deceased Person Was a Member or Manager of the LLC.
It is important to determine whether or not the deceased person was a member or a manager of the LLC (or both). If the deceased was a manager, then you will need to identify who will be taking over in that role and ensure that all necessary paperwork is submitted. In some cases, if there are multiple members, then it may be necessary to appoint a new manager. In many states, you can figure out if the person was a member or manager by going to the state’s Corporation Commission. For instance, you can get information about an Arizona LLC when someone dies by going to the Arizona Corporation Commission’s website.
Figure Out How the Deceased Person Owned the LLC.
The first step is to figure out how the deceased owned their membership units in the LLC. They may have held their membership interest in their personal name. In that case, it may be necessary to go through a probate process. (Talk an a probate attorney to find out for sure.) If the deceased person held their ownership interest in a trust, then the trust document will control who gets what. There may also be an Operating Agreement for the members that determines whether someone has a right to buy out the deceased person’s membership interest. Un some cases, it may be necessary for all remaining members to purchase and own more units, which can be determined by industry percentages or by other agreements within the LLC’s operating agreement. It’s really best to consult with an attorney to help you figure out the next steps.
Make Necessary Changes to Tax Documents and Business Registrations.
When someone dies, the LLC will need to make changes to any of its tax documents or business registrations. The IRS may require a new Employer Identification Number (EIN) for the LLC if there has been a major change in ownership structure. Furthermore, state governments may also have additional filings that you need to submit in order to update their records on your business. Depending on what type of LLC you have and related membership percentages, it is important to be aware of necessary tax and filing obligations that must be kept up-to-date.
Consider Winding Up or Terminating the LLC When Someone Dies.
Depending on the terms of the LLC’s governing documents, you may need to wind up or terminate the LLC when someone dies. When winding up a business, the remaining members will need to notify all creditors, pay any taxes or debts due, and distribute assets to the beneficiaries. It is important to seek legal advice for this process. Notably, winding up an LLC does not cancel any licenses that have been granted by state agencies or federal government entities. If a business license has been attained for the LLC, such as a liquor license, then a formal application must be made in order to cancel it following the death of one of its members.
Let Us Help You With Your LLC When Someone Dies.
There are a lot of legal steps that must be taken to deal with the LLC when someone dies. We recommend that you seek professional help from an attorney who specializes in estate planning and business law. (We can help.) They can guide you through the process of winding up or terminating your LLC and ensure everything allocated to your loved one is given to their rightful beneficiaries. Additionally, they can assist with filing the proper paperwork and tax forms with the state or federal agencies.
If you want help, give us a call at 602-443-4888.