Disclaimer: This is educational information only and not legal advice. For decisions about a specific situation, consult an Indiana attorney familiar with LLC and estate law.
Detailed answer — How Indiana law handles an LLC member’s interest when the member dies
If an Indiana limited liability company (LLC) operating agreement is silent about what happens when a member dies, default rules under Indiana law and basic probate principles will govern. In practical terms, the decedent’s economic (financial) interest typically passes to the decedent’s estate or heirs, but management rights and voting power generally do not automatically transfer to the heir or personal representative unless the remaining members agree.
Legal framework (where to look)
Indiana’s statutory rules governing LLCs are found in Title 23 of the Indiana Code (Business and Other Associations). Those statutes set default rules that apply unless an LLC’s operating agreement or articles of organization state otherwise. For the statutes, see the Indiana Code, Title 23: https://iga.in.gov/legislative/laws/2024/ic/titles/023
Key default rules you should expect
- Transferable (economic) interest vs. membership rights: Most LLC statutes, and Indiana’s approach, treat a member’s right to distributions and allocation of profits (the financial or “transferable” interest) as property that can pass to the member’s estate. However, the right to participate in management and vote as a member is a separate right that usually does not transfer automatically to an heir or executor without the consent of the other members.
- Estate or beneficiary receives distributions, not always control: The personal representative or designated beneficiary may be entitled to distributions due to the deceased member, but they typically act only as a recipient of money unless admitted as a member under the LLC’s rules or by unanimous consent of the surviving members.
- Potential for buyout or transfer restrictions: If the operating agreement is silent, the LLC’s articles or state default rules may allow (or require) the LLC or remaining members to buy the decedent’s financial interest. Many LLCs have transfer restrictions (right of first refusal, buy-sell rules), and absent written rules courts and other members may insist on orderly valuation and transfer procedures through probate.
- Possible dissolution triggers: In some LLCs, the death of a member can trigger an event that permits or requires dissolution, unless the operating agreement or members’ actions provide a continuation plan. Whether dissolution occurs depends on the LLC’s structure and the statutory default rules.
How this commonly plays out (step-by-step)
- Notify the LLC and produce a certified death certificate. The LLC will need notice to start any buyout or distribution process.
- The deceased member’s interest becomes part of the probate estate (unless it was held in a trust or otherwise transferred outside probate). The personal representative will collect distributions due to the estate.
- Management and voting: The personal representative or heir does not automatically step into the decedent’s seat for management. To gain member rights, that person usually must be admitted as a member according to the operating agreement or by vote of the remaining members.
- If the LLC has no instruction, the members can agree on a valuation and either (a) admit the heir as a new member, (b) buy out the estate, or (c) negotiate other terms. If members cannot agree, the estate may pursue remedies in probate or business court to enforce its financial rights.
- If unresolved, the disagreement can lead to forced buyout, judicial dissolution, or litigation about valuation and membership status.
Practical documents and proofs the LLC or estate will want
- Certified copy of the death certificate.
- Will and letters testamentary or letters of administration (documents proving the authority of the personal representative).
- The LLC’s operating agreement, articles of organization, and any buy-sell agreements or side agreements.
- Records of member capital accounts and recent financial statements to calculate the deceased member’s share.
Valuation, buyouts, and timing
Absent an operating agreement provision specifying valuation and timing, members must agree on a fair valuation method (book value, discounted cash flow, multiple of earnings, independent appraisal). Disputes about valuation are common; many business owners use life insurance or corporate buy-sell funding to avoid such disputes. If members cannot agree, the estate may seek judicial resolution, which can be slow and expensive.
Probate and tax considerations
- The decedent’s distributive share passes through probate to the estate or beneficiaries unless owned by a nonprobate vehicle (trust, transfer-on-death arrangement where allowed, etc.).
- Estate tax, income tax, and basis adjustments may apply. The estate will need tax advice to determine filing obligations and basis for the transferred interest.
When dissolution is possible
Whether the LLC dissolves automatically or continues depends on the LLC’s formation documents and the number/nature of members. Many operating agreements say the LLC continues despite a member’s death; if silent, state default rules and member actions determine the outcome.
When to get legal help
Obtain an Indiana attorney in these circumstances:
- If the operating agreement is silent and members cannot agree on buyout or admission of an heir.
- If the estate needs to collect distributions or negotiate terms with remaining members.
- If there is a threat of dissolution or litigation over the membership interest.
- If tax planning or probate issues are complex (large estate, multiple owners, cross-border heirs).
Helpful hints
- Review the operating agreement and articles first. Those documents are controlling—statutes fill gaps only when the documents are silent.
- Locate the decedent’s estate documents (will, trust) and get letters granting authority (letters testamentary or of administration) to act for the estate.
- Ask the LLC for financial statements and member capital account records to estimate the value of the deceased member’s interest.
- Do not accept or make an informal transfer of membership rights without checking the operating agreement—doing so can cause disputes or claims later.
- Consider life insurance or a funded buy-sell agreement in the future to provide liquidity to buy out a member’s estate at a pre-agreed price.
- If you represent the estate, act promptly: notify the LLC, preserve records, and consult an attorney about whether to seek admission as a member or negotiate a buyout.
- Keep communication open. Often the simplest resolution is a negotiated buyout or admission of the heir as a new member if everyone agrees on terms.
- For statute-level authority, review Indiana Code Title 23 (Business and Other Associations): https://iga.in.gov/legislative/laws/2024/ic/titles/023
- For practical LLC filing and procedural info, see the Indiana Secretary of State business services: https://www.in.gov/sos/business/
If you want, I can: (1) summarize what typical buy-sell clauses look like, (2) draft a short checklist you can give an attorney or the LLC, or (3) outline language to add to an operating agreement to avoid future uncertainty.