Delaware: Can a Will Override an LLC Operating Agreement to Give My Business Interest to My Son? | Delaware Estate Planning | FastCounsel
DE Delaware

Delaware: Can a Will Override an LLC Operating Agreement to Give My Business Interest to My Son?

What happens if you try to leave your LLC interest by will in Delaware?

This FAQ explains how a will interacts with an LLC operating agreement in Delaware and what happens to an LLC interest when an owner dies.

Short answer

No — a last will generally cannot “override” a valid, existing operating agreement. Under Delaware law the operating agreement and the Delaware Limited Liability Company Act govern what a deceased member’s estate and heirs receive. In practice, a will can transfer your economic right (the right to receive distributions) but usually cannot force the LLC to admit the heir as a full member or change contractual transfer restrictions absent the LLC’s agreement or an amendment to the operating agreement.

Detailed answer — how Delaware law treats LLC interests at death

Start with two principles: (1) an LLC operating agreement is a binding contract among members, and (2) Delaware’s LLC statute sets default rules about transferable interests and member rights. Together these determine what a will can accomplish.

1. Operating agreements control

If your operating agreement says what happens to a member’s interest on death — for example, it requires the LLC or remaining members to buy the interest, or it disallows admission of a transferee without consent — the operating agreement’s rules apply. A will cannot rewrite a contract that you and the other members already signed.

2. What a will can transfer: the “transferable interest”

Under Delaware’s LLC law, a member’s economic stake (often called a “transferable interest”) is treated as personal property and can be transferred by will or otherwise. That transfer usually gives the beneficiary the right to receive distributions and the member’s share of economic proceeds, but not necessarily management or voting rights. Unless the operating agreement or the other members agree, the beneficiary typically does not become a full member with management authority solely by virtue of the will.

See Delaware’s Limited Liability Company Act for the statutory scheme: https://delcode.delaware.gov/title6/c018/index.html

3. Transfer restrictions and consent provisions

Many operating agreements contain explicit transfer restrictions and buy-sell or redemption provisions triggered on a member’s death. Those provisions are enforceable in Delaware. If the operating agreement says that on death the LLC must purchase the interest at a formula price, or that the heir must be approved to become a member, those contractual terms govern the result — not a contrary instruction in a will.

4. Practical results after death

  • If the agreement requires redemption or a purchase, the estate/bene­ficiary gets payment per that process.
  • If the agreement is silent but state default rules apply, the heir will often receive the economic rights but not management rights.
  • If the members consent (or the operating agreement permits), the heir could be admitted as a member and receive full membership rights.

5. Can you change this outcome during life?

Yes. You can amend the operating agreement (if other members agree), transfer or gift your membership interest during life, or create a buy-sell agreement that expressly admits a designated person on your death. These steps are generally more reliable than trying to accomplish the result solely by a will.

6. Why this matters: probate, taxes, and voting

Even if the heir inherits the economic interest, tax and probate issues remain. The estate may receive payments which are subject to income tax rules, and the LLC may withhold payment until valuation or closing procedures are completed. Voting and control of the LLC will follow the operating agreement unless other members agree to a change.

Statutory reference

Delaware’s Limited Liability Company Act (Title 6, Chapter 18) governs member rights, transferable interests, and default rules for transfers. See the chapter here: https://delcode.delaware.gov/title6/c018/index.html

Helpful hints — steps to protect your intent

  • Review the operating agreement carefully for death, transfer, buyout, and consent clauses. These typically control outcomes.
  • If you want your son to be a full member, consider:
    • Amending the operating agreement to permit transfer or automatically admit your son on death, with other members’ written consent if required.
    • Transferring (gifting or selling) the interest during your lifetime with the required consents in place.
    • Executing a buy-sell agreement or a succession plan that spells out valuation and timing.
  • If you only want your son to receive economic benefits, a will can pass the transferable interest (subject to the operating agreement). But expect limits on control rights unless the LLC agrees otherwise.
  • Keep communications with co-members documented. Many disputes arise because other members didn’t know or didn’t consent to changes.
  • Consult professionals for tax consequences of any transfer or inheritance — transfers may have gift, estate, or income tax implications.
  • If the operating agreement is ambiguous, consider mediation or a negotiated amendment. Litigation over ambiguity is expensive and uncertain.
  • Work with an attorney to update estate documents and, if necessary, to draft amendments, transfer instruments, and closing procedures that comply with Delaware law.

Disclaimer: I am not a lawyer and this is not legal advice. This article summarizes general principles under Delaware law (see Delaware Limited Liability Company Act, Title 6, Chapter 18) and is intended to help you understand your options. For advice specific to your situation and to prepare or modify legal documents, consult a licensed Delaware attorney.

The information on this site is for general informational purposes only, may be outdated, and is not legal advice; do not rely on it without consulting your own attorney.