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Richard
Richard, Attorney
Category: Legal
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Experience:  Attorney with 29 years of experience.
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Got a question about a LLC form of business own entirely by

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Got a question about a LLC form of business own entirely by husband and wife. The husband dies and the wife continues the business for several months.

The husband and wife owned the llc 49% and 51%. There is cash left in the business. Does all of the remaining distribuition go 100% to the remaining spouse. There are claims to the husband estate from a former wife. Do you value the cash assests at death or will the estate value after death be included as a part of the husband's values and therefore subject to the creditors of his estate ? The LLC was formed in Maryland
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.


Good morning. Does the operating agreement provide for what happens to the interest of a deceased member? Thank you!
Customer: replied 3 years ago.

No, it was a general LLC format from Maryland. Let me see if I can get a copy real quick

Thanks for following up. I will be here when you get a copy. Take your time.
Customer: replied 3 years ago.
Thanks. So you never signed an Operating Agreement between the two of you?
Customer: replied 3 years ago.

No

Thank you. Death does not dissolve or terminate the LLC> Only the ownership interest in the LLC is part of the estate. A creditor would only have a claim to the value of the ownership interest itself. You need not make any distributions from the LLC and the creditor would have no right to the LLC assets, including cash. If the estate has only a minority interest, even if that was at risk, the creditor could not gain control of the LLC. Furthermore, the majority owner would have the right to buy the interest of the deceased for its fair market value so a creditor could be prevented from any interest in the company itself.



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Customer: replied 3 years ago.

A creditor would only have a claim to the value of the ownership interest itself. - No sure exactly what that means. The former or ex spouse is trying to assert a child support balance against the LLC.


 


My understanding from what you are saying is that she would not have a claim against the LLC for the child support claim she is making against his estate. i.e. LLC cash where I am the remaining member in the LLC. and as the only member in the LLC. The LLC assests are not included as part of his estate.

Thanks for following up further. What that means is that she has no claim against the LLC assets themselves because the LLC is a separate and distinct entity. The only thing in your husband's estate is his interest in that LLC. His estate is still an owner of the LLC interest, and the claims of the estate have to be satisfied before the estate assets, including the LLC interest, can be distributed to you. But, if your husband's interest was only 49%, she cannot control what happens in the LLC no matter if she does gain control of the LLC interest to collect her child support claim.



This is the part of my job I don't like...when the law is not in favor of my customer. I wish I could tell you that you could automatically take his interest upon his death, but, I can only provide you information based on the law so that you can act on the best available information to you. ………..I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry!


Customer: replied 3 years ago.

This would extend past the date of death. The Profit earned after the death is also included in his estate until the LLC is dissolved.

It simply impacts the value of the LLC interest. But, until the estate is settled, the estate continues to own the LLC interest and any increase or decrease to the value of the LLC directly impacts the value of the LLC ownership interest.
Richard and 7 other Legal Specialists are ready to help you
In the future, if you have an LLC, you would want to have an Operating Agreement to specifically address this to protect it in the event of death.



I just wanted you to know that I'm getting ready to take a short lunch break. Should you have further follow ups, I will address them immediately upon my return. I appreciate your patience and apologize in advance for any inconvenience.

Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!

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