An operating agreement is not required, but it is recommended because it can address important aspects of your limited liability company (“LLC”), such as, the management of the LLC, powers of the managers/members, ownership interest, transfer of ownership interest, how new members can be added, how a new manager can be elected, voting, how profits and losses should be split, and a major benefit that many do not know about: transfer of membership interest at the death of a member.
An operating agreement can be a great addition to your estate plan. If you draft an operating agreement that transfers your membership interest at death, your membership interest will avoid probate if the provision in the operating agreement is properly drafted.
In BLECHMAN v. ESTATE OF Bertram BLECHMAN, 160 So.3d 152, 154 (Fla. 4th DCA 2015), the court identifies language in an operating agreement that properly transfers membership interest at the death of a member to that member’s living children and grandchildren of any deceased children. The language the court identified is as follows:
6.3 Death of Member
(a) Unless (i) a Member shall Transfer all or a portion of his or her Membership Interest in accordance with 6.1 or 6.2 hereof, or (ii) a Member bequeaths the Membership Interest in the Member’s last will and testament to members of the Immediate Family of the respective Member, or (iii) all such Membership Interests of a deceased Member are inherited, or succeeded to, by Members of the Immediate Family of the deceased Member, then in the event of a death of a Member during the duration of this Agreement, the Membership Interest of the deceased Member shall pass to and immediately vest in the deceased Member’s then living children and issue of any deceased child per stirpes.
Based on the above provision, the court held that a deceased member’s membership interest passed to his children outside of property upon his death.
It should be noted that a provision in an operating agreement that transfers membership interest at the death of a member supersedes a will. Thus, if you add a transfer of membership interest on death provision to your operating agreement, but also transfer membership interest in the LLC in your will, the transfer of membership interest on death provision in your operating agreement will control.