This article explains how South Dakota law treats the relationship between an individual’s last will and testament and an LLC operating agreement. It uses a simple hypothetical to illustrate typical outcomes, explains the controlling legal principles, and lists practical steps you can take to ensure your business interest passes as you intend.

How South Dakota law treats LLC membership interests and wills

Under South Dakota law, an ownership interest in a limited liability company typically includes two different kinds of rights:

• Financial (economic) rights: the right to distributions of profits or capital.
• Governance (membership) rights: the right to participate in management, vote, or hold member status.

Many LLC statutes and operating agreements treat those rights differently when a member dies. Generally:

• A will can pass the decedent’s economic rights (for example, the right to receive distributions) to a beneficiary such as a son. The beneficiary (or the decedent’s estate) normally can collect distributions that would otherwise be paid to the deceased member.
• A will usually cannot unilaterally change contractual restrictions in the LLC’s operating agreement. If the operating agreement limits transfers, requires member consent for admission of a transferee, or provides a buy-sell or redemption mechanism on death, the terms of the operating agreement and state LLC law will control who becomes a member and what the transferee actually receives.

Typical hypothetical

Suppose you own 40% of an LLC governed by an operating agreement that says a member may not transfer membership rights without the written consent of the other members and that, on a member’s death, the other members have the option to buy the deceased member’s interest. You leave your LLC interest to your son in your will.

Result under typical rules:

• Your son will inherit your economic rights — the right to distributions attributable to your interest — unless the operating agreement or state law provides otherwise.
• Your son may not automatically gain the governance rights or member status. Other members may have the contractual right to refuse his admission and to buy or redeem your interest under the buy-sell provision. If they exercise that right, your estate (or son) would receive cash or other consideration rather than membership rights.

Controlling authorities in South Dakota

Two bodies of law matter here: the South Dakota statutes that govern LLCs and the statutes that govern wills and probate. The LLC statutes and the written operating agreement typically govern transfer rules and membership admission. South Dakota’s business-organization statutes are available online; see the South Dakota Legislature’s website for the applicable chapters on limited liability companies. For wills and probate, see South Dakota’s probate statutes.

Relevant statutory resources:

• South Dakota statutes on business entities (including LLC law): https://sdlegislature.gov/Statutes/Codified_Laws/DisplayStatute.aspx?Title=47
• South Dakota probate and wills statutes: https://sdlegislature.gov/Statutes/Codified_Laws/DisplayStatute.aspx?Title=29A

Note: The exact statutory sections that apply will depend on the specific LLC provisions and how South Dakota has codified limited liability company law. Operating agreements and any buy-sell or transfer provisions are contract documents that usually control unless they conflict with mandatory statutory requirements.

Why a will often cannot “override” the operating agreement

• Operating agreements are binding contracts among the members. A will cannot rewrite a contract between living parties. If the agreement requires consent to transfer or contains a death-triggered buyout, those provisions typically remain enforceable after death.
• State LLC law commonly distinguishes between a transferee of economic rights and admission as a member. The transferee can receive distributions but may not obtain voting/management rights unless admitted under the operating agreement or statute.
• If the operating agreement contains a right of first refusal, buyout price formula, or compulsory redemption at death, those terms will usually determine what the beneficiary receives.

Practical steps to achieve the intended result

If you want your son to receive not just economic rights but also membership rights, consider the following steps well before you die:

1. Read the operating agreement. Find sections on transfers, admission of new members, rights on death, and buy-sell or redemption agreements.
2. Amend the operating agreement while alive. If other members agree, you can change transfer restrictions or add a provision that admits a specified person on your death.
3. Use a trust. Transferring your LLC interest to a revocable living trust that names your son as beneficiary can avoid probate and may simplify transfer mechanics consistent with the operating agreement and statutory rules.
4. Negotiate a buy-sell or admission arrangement now. Members can sign side agreements or amend the operating agreement to create a binding path for admission or a valuation formula on the member’s death.
5. Consider gifting membership units during life. Transferring a portion of the interest now (if the operating agreement allows) can make your son a member while you live and avoid post-mortem complications.
6. Coordinate estate planning and business documents. Update your will and other estate documents to reflect the LLC provisions and to state your intent clearly; but use contractual changes to ensure enforceability.

What to bring to an attorney

• A complete, current copy of the LLC operating agreement and any amendments.
• Certificate of formation or articles of organization and any member admission documents.
• Any buy-sell agreements, side letters, or transfer restriction documents.
• Your existing estate planning documents (will, trusts, powers of attorney).

Bottom line

A last will can convey your estate’s economic interest in an LLC to your son, but it will not necessarily override the operating agreement’s rules about transfers, membership admission, or buyouts. To make sure your son becomes a member (rather than merely receiving future distributions), you should review and, if necessary, amend the operating agreement or arrange a binding agreement among the members while you are alive. Consult a South Dakota attorney who handles business and estate planning to draft enforceable documents that achieve your goals.

Disclaimer: This information is educational only and not legal advice. It does not create an attorney-client relationship. For advice tailored to your situation, consult a licensed attorney in South Dakota.