Indiana: Can a Will Override an LLC Operating Agreement to Leave Your Business Interest to Your Son? | Indiana Estate Planning | FastCounsel
IN Indiana

Indiana: Can a Will Override an LLC Operating Agreement to Leave Your Business Interest to Your Son?

Detailed Answer

Short answer: Usually no — a last will alone cannot override a valid LLC operating agreement that restricts transfers or membership admission. A will can pass whatever economic interest you own as property to your son, but it usually cannot force the LLC or the other members to admit him as a member or to ignore contractual buy‑sell or consent provisions.

Why an operating agreement usually controls

An LLC operating agreement is a contract among the members. It typically sets rules for selling, assigning, or inheriting membership interests, including:

  • whether a transferee becomes a member or only an assignee with economic rights;
  • requirements for member consent before new members are admitted;
  • buy‑sell, right‑of‑first‑refusal, or mandatory purchase provisions triggered by death, gift, devise, or transfer.

Because those rules are contractual, a testamentary document (your will) generally cannot change the parties’ contract rights. In practice that means the operating agreement will usually govern what happens when a member dies.

What happens to the LLC interest under typical rules

Under common statutory defaults used by many states (and reflected in Indiana’s LLC statutes), when a member dies the person who receives the interest by inheritance usually becomes a transferee with economic rights (right to distributions) but not membership or governance rights unless the other members consent to admit that person as a member. If the operating agreement contains a buy‑sell or mandatory purchase on death, the LLC or remaining members may buy out the decedent’s interest instead of leaving an ongoing interest to your heir.

Relevant Indiana law (where to look)

Indiana’s LLC law is found in Title 23 of the Indiana Code (Limited Liability Company Act). Indiana’s probate and wills rules are in Title 29. These statutes provide the legal background for transfers of LLC interests and for probate transfers. See the Indiana Code online for the text and any state default rules that apply:

Common outcomes depending on the operating agreement

  • Operating agreement allows admission on transfer: If the agreement permits transfer or admits transferees automatically, your will can pass full membership and management rights to your son.
  • Agreement restricts transfers or requires consent: Your son may receive only economic rights (distributions) but not voting or management authority. Other members can enforce consent requirements or exercise buy‑sell clauses.
  • Agreement contains a buy‑sell on death: The LLC or remaining members may purchase your interest at a formula or valuation instead of leaving the interest to your son.
  • The agreement is silent: State default rules apply. Those defaults commonly give transferees distribution rights but not membership or governance without consent.

Practical steps to take now

  1. Obtain and read the LLC operating agreement carefully. Pay attention to transfer, assignment, admission, buy‑sell, and death provisions.
  2. Check whether your interest is held personally or through another entity (trust, holding company) — ownership form affects probate treatment.
  3. If you want your son to become a member, consider amending the operating agreement now to allow that transfer or to create a clear buy‑in mechanism.
  4. If the agreement gives other members a buy‑out on death, consider negotiating a cross‑purchase agreement or life insurance funding to provide liquidity for a planned transfer.
  5. Coordinate estate planning documents (will, trust, beneficiary designations) with the LLC rules. A revocable trust may allow smoother succession than a will in some cases.
  6. Get advice from an Indiana attorney experienced in business succession and estate planning to draft or amend documents that will achieve your goals.

Examples (hypotheticals)

Hypothetical A: The operating agreement says any transfer requires unanimous member consent. You leave your interest to your son in your will. Result: Your son inherits the economic interest through probate, but the other members can refuse to admit him as a member; they may instead enforce a buy‑sell and purchase the interest.

Hypothetical B: The operating agreement states that a devisee on death automatically becomes a member. Result: Your will can pass full membership to your son, subject to any probate formalities.

When a will might effectively transfer the interest

If the operating agreement expressly permits transfers by will or expressly treats devisees as members, then a valid will can accomplish your intent. Also, if you amend the operating agreement before death to allow the particular testamentary transfer, a will can implement that plan.

When to contact an attorney

Talk to an Indiana attorney if you:

  • want to make sure your son receives both economic and membership rights;
  • face a buy‑sell clause that might force a sale on your death;
  • own the interest through a trust or entity and need to coordinate probate avoidance;
  • need help amending the operating agreement or drafting cross‑purchase agreements.

Disclaimer

This article is educational and informational only. It is not legal advice. Laws change and the facts of your situation matter. Consult a licensed Indiana attorney before relying on this information or making legal decisions.

Helpful Hints

  • Start by locating the operating agreement and any buy‑sell agreements — they usually decide succession issues.
  • If you want membership (voting) rights transferred, amend the operating agreement now rather than relying on a will later.
  • Consider using a revocable trust to avoid probate delays and make business succession smoother.
  • Document any promises to other members in writing — verbal assurances may not bind the LLC or future members.
  • If a buy‑out is likely, plan funding (life insurance, savings) so the LLC or members can pay without forcing a distress sale.
  • Keep estate and business documents consistent: mismatch across will, trust, and operating agreement creates disputes and litigation risk.
  • Ask for a member ledger or ownership statement from the LLC to confirm what you legally own now.

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.