Detailed answer
When an LLC operating agreement is silent about what happens to a member’s LLC interest at death, Iowa law and the LLC’s own formation documents will control. Two separate legal pieces matter: (1) the decedent’s estate and how property passes at death under Iowa probate law; and (2) the LLC rules that define what a “membership interest” includes and whether a transferee can become a member or only receives economic rights.
How membership interests typically break down
- Economic interest: the right to distributions and the right to a share of proceeds if the LLC is liquidated.
- Management/member rights: voting, management, and other governance rights tied to being a member.
In many LLC statutes (including Iowa’s LLC statute), these two components are treated differently. Even if a deceased member’s heir or devisee inherits the economic interest, that person often does not automatically gain management or membership rights unless the operating agreement, the articles of organization, or the other members agree.
What happens under Iowa law when the operating agreement is silent
1) The decedent’s membership interest becomes part of the decedent’s probate estate and passes under the decedent’s will or, if there is no will, under Iowa’s intestacy rules. See Iowa probate statutes (Iowa Code chapter 633) for how property passes to heirs: Iowa Code ch. 633.
2) The person who inherits the decedent’s interest will usually receive the economic rights (distributions). But unless the LLC’s governing documents or the other members permit, the heir may not automatically receive membership (voting/management) rights. Iowa’s LLC laws and standard practice allow the remaining members to limit transfers, require consent, or provide buy-out mechanisms. See the Iowa LLC statute for governing rules: Iowa Code ch. 489 (Limited Liability Companies).
Common practical outcomes
- The estate receives the right to distributions from the LLC; the heir waits for probate to complete to collect distributions.
- The other members exercise a right of first refusal or buyout, purchasing the decedent’s interest from the estate at a contractually specified or judicially determined value.
- The heir becomes an owner of only the economic interest (receiving distributions) but not a member with voting or management authority, unless the members consent.
- If members cannot agree and the documents are ambiguous, the dispute may need resolution through negotiation, mediation, arbitration (if the operating agreement requires), or court action during probate.
Steps to take now
- Locate the operating agreement and articles of organization. Even if they are silent on succession, they may contain transfer restrictions or buyout procedures elsewhere.
- Check for a buy-sell agreement, right-of-first-refusal clause, or life insurance funding for buyouts.
- Notify the LLC managers or the other members and provide a certified copy of the death certificate to start any required processes.
- Open a probate estate (if necessary) so the executor or personal representative can act for the estate in selling or transferring the interest.
- Get a valuation of the membership interest if a buyout or sale will occur. Valuation often depends on the LLC’s accounting and tax treatment.
- Speak with an estate or business attorney early—especially before the estate sells the interest or the LLC asserts buyout rights. A lawyer can protect the estate’s value and interpret the LLC’s documents under Iowa law.
Hypothetical example
Jane owned 30% of an Iowa LLC. Her operating agreement said nothing about death. Jane dies without a will. Under Iowa intestacy law, her 30% economic interest becomes part of her probate estate and passes to her heirs. The heirs can collect distributions once probate is complete, but the remaining members enforce a buyout clause in the articles that requires the LLC to purchase the deceased member’s interest at a negotiated value. The heirs receive cash from the buyout but do not take over Jane’s management seat.
Where Iowa statutes matter
Look at the Iowa LLC statute for default rules about transfer, dissociation, and membership rights, and at Iowa’s probate and intestacy chapters for how property passes at death. For reference, start with the Iowa Code chapters on limited liability companies and probate:
- Iowa Code chapter 489 — Limited Liability Companies
- Iowa Code chapter 633 — Probate, Intestate Succession and Wills
Bottom line: If the operating agreement is silent, the decedent’s membership interest will generally pass through the decedent’s estate under Iowa probate law, but the heir often gets only the economic rights unless the remaining members or governing documents allow the heir to step into membership/management. Expect buyout or transfer restrictions and consult counsel to protect the estate’s interests.
Helpful hints
- Don’t assume inheritance equals instant management: clarify whether the heir has voting rights before acting on behalf of the LLC.
- Search for hidden transfer rules: restrictions sometimes live in the articles of organization or in separate buy-sell agreements.
- Get the death certificate and contact the LLC promptly to avoid missed distributions and deadlines.
- Consider using estate planning tools (e.g., revocable trust, cross-purchase agreements, or funded buy-sell plans) to control succession in the future.
- Plan ahead: for active members, add clear buy-sell and transfer provisions to the operating agreement to prevent uncertainty for heirs and the company.
- Document valuation methods in the operating agreement to limit disputes after a member’s death.
- Talk to both an estate attorney and a business attorney who know Iowa LLC and probate rules to coordinate probate, tax, and business matters.
Disclaimer: This content is for general informational purposes only and is not legal advice. It does not create an attorney-client relationship. For advice about your specific situation under Iowa law, consult a licensed Iowa attorney.