Detailed Answer
Short answer: In most cases under Oregon law, a last will and testament cannot unilaterally override an LLC operating agreement or other binding business agreement to change how a deceased member’s business interest is treated. A will can direct who receives your estate assets, but it cannot free a transferred interest from contractual restrictions or change the rights other members have agreed to enforce.
Why: An operating agreement is a contract among the members of an LLC. That contract can include transfer restrictions, buy‑sell provisions, rights of first refusal, and rules for admitting a transferee as a member. Those provisions typically survive the death of a member and bind the decedent’s estate and beneficiaries. Thus, a will that attempts to give your LLC interest to someone may be limited by terms in the operating agreement.
How it typically works in practice in Oregon:
- Economic rights versus membership rights. Many Oregon LLC operating agreements distinguish between the deceased member’s transferable economic interest (the right to receive distributions) and membership or governance rights (voting, management, admission as a member). A testator can leave their economic interest to an heir, but that heir may receive only the economic benefits unless the operating agreement or the remaining members permit admission as a full member.
- Contractual transfer restrictions. If the operating agreement requires member consent to admit a transferee, or requires a buyout on death, the estate may have to sell the interest back to the company or to other members, or follow the agreement’s admission process. A will cannot unilaterally erase those contractual obligations.
- Estate administration. Your executor will have the authority to transfer whatever interests you actually own at death under probate and your will. But if the company interest is subject to restrictions, the executor must follow those rules when transferring or selling the interest.
Relevant Oregon law and where to read it:
- Oregon’s LLC statutes (see provisions on member rights, transferable interests, and member duties) are in the Oregon Revised Statutes governing limited liability companies. See ORS Chapter 63 for state LLC law: https://www.oregonlegislature.gov/bills_laws/ors/ors063.html.
- Oregon probate and wills rules that govern testamentary transfers and estate administration are in the Oregon Revised Statutes on wills and probate. See ORS Chapter 112 and related probate provisions for rules on wills and estate administration: https://www.oregonlegislature.gov/bills_laws/ors/ors112.html.
Example hypothetical to illustrate:
Suppose an Oregon LLC operating agreement says that on a member’s death the LLC has the option to buy the deceased member’s interest at a defined valuation and that a transferee cannot be admitted as a member without unanimous consent. If the deceased member’s will leaves their interest to their adult child, the executor can attempt to transfer the decedent’s economic interest to the child. But the LLC may exercise its buyout right and pay the estate cash, or the child may hold only the economic interest without voting power unless the other members admit the child as a member. The will alone does not cancel the buyout or admission requirement.
When a will might effectively transfer more
A will can accomplish a full transfer of both economic and membership rights if, before death, the owner took steps to eliminate or change contractual restrictions. For example:
- The owner amended the operating agreement to permit the designated heir to be admitted as a member on death.
- The owner executed a contemporaneous transfer or gift of membership interest during life, consistent with the operating agreement.
- The other members signed written consent ahead of time admitting a named transferee upon death.
Absent those steps, the operating agreement and other company documents usually govern what happens to the interest at death.
Practical steps to protect your intent
To increase the chance that a chosen person actually receives the business interest you intend, consider these approaches:
- Review the operating agreement for death, transfer, buyout, admission, and right‑of‑first‑refusal provisions.
- Amend the operating agreement while you are alive to reflect your intent (this usually requires the approval process stated in the agreement).
- Make a lifetime gift or sale of the interest consistent with the operating agreement.
- Use a buy‑sell agreement funded by life insurance so your estate can be paid the value of the interest and your family receives cash.
- Discuss your plan with the other members and get written consent if possible for your proposed successor.
When to consult an attorney and what to bring:
- If the LLC is significant in value or governance, consult an Oregon business or estate attorney early.
- Bring the operating agreement, any buy‑sell or shareholders agreement, entity formation documents, your will and trust documents, and any prior amendments or written member consents.
- Ask about options to amend the operating agreement, implement a buy‑sell funded plan, or structure a transferable interest that meets your estate plan.
Helpful Hints
- Do not assume a will alone controls business succession. Check the operating agreement first.
- Look for clauses titled ‘death of member,’ ‘transfer of interest,’ ‘buyout,’ ‘right of first refusal,’ or ‘admission of transferee.’
- Consider lifetime transfers or written waivers from other members to avoid probate complications.
- Value the interest professionally if buyout rights or estate tax issues may apply.
- Use life insurance to fund buyouts so family receives cash rather than illiquid business assets.
- Inventory business documents, personal estate documents, and beneficiary designations before meeting an attorney.
- Keep communication open with co‑owners to prevent surprises and disputes after death.
Disclaimer: This article provides general information about Oregon law and is not legal advice. It does not create an attorney‑client relationship. For advice about your specific situation, consult a licensed Oregon attorney who can review your operating agreement, will, and goals and recommend a tailored plan.