Utah General Contractors - Business and Law Practice Exam

Do Limited Liability Companies have the ability to be passed down to family members when an owner (member) dies?

1. Yes

2. No

3. Only with a will

4. Only in certain states

The correct answer is: No

Limited Liability Companies (LLCs) can have specific provisions regarding the transfer of ownership interests upon the death of a member, which usually depends on the operating agreement of the LLC. The default rule in many states, including Utah, is that an individual’s membership interest in an LLC does not automatically pass to heirs or family members upon the member’s death, unlike other forms of ownership such as joint tenancy where rights of survivorship exist. If the operating agreement does not provide specific instructions for succession or transfer of ownership, the membership interest may need to be settled through the estate of the deceased member, which may not allow for a direct transfer to family members. Thus, membership interests may be treated as personal property and subject to the probate process, which does not guarantee that family members will receive the interest immediately or in full based on the deceased member’s wishes. Ownership transfer is also contingent upon the consent of other members, especially in cases where the operating agreement stipulates that a member cannot transfer their interest without others’ approval. Hence, while an LLC can be structured to allow for such transfers, the lack of automatic inheritability characterizes the answer as, indeed, no.