Detailed Answer
Short answer: If your California LLC’s operating agreement is silent about what happens to a member’s interest at death, state law fills the gap. The decedent’s ownership interest generally passes as personal property to the decedent’s estate or beneficiaries, but the transferee usually receives only economic rights (distributions) by assignment — not automatic management or voting rights as a full member. The LLC typically continues in existence; the deceased member is treated as dissociated under California law unless the remaining members agree otherwise.
How California law treats a member’s interest at death
Under California’s Limited Liability Company statutes (the California Revised Uniform Limited Liability Company Act), a member’s interest in an LLC is property. When a member dies, that property interest passes according to that member’s estate plan (will or trust) or by intestate succession if there is no plan. See California law governing LLCs for the statutory framework: California Corporations Code, Division 7 (Limited Liability Companies).
Economic rights versus management rights
Most LLC statutes (including California’s) draw a distinction between a member’s transferable interest (the right to receive distributions) and being a full member (rights to vote or participate in management). If someone inherits or receives the deceased member’s interest by assignment, they usually obtain the right to distributions but not automatic rights to participate in management or vote unless the operating agreement or the other members agree to admit them as a member. In practice, that means heirs or beneficiaries may be entitled to the money the member would have received, but they often cannot make management decisions unless admitted.
Dissociation and continuity of the LLC
The death of a member commonly causes that person to be dissociated from the LLC. Dissociation does not automatically dissolve the LLC. The company continues unless the operating agreement or the statutes provide for dissolution on a member’s death or unless the remaining members decide to dissolve. This structure preserves business continuity while protecting remaining members’ control rights.
Probate, wills, and trusts
If the member leaves a will, the issued interest typically passes through probate to the executor and then to the named beneficiaries. If the interest is held in a revocable trust, the trust terms can transfer the economic interest without probate. Because a transfer by will often requires probate (which can be slow and public), many members use trusts or specific buy-sell provisions to control what happens at death and to speed transfer to heirs.
Common default results when the operating agreement is silent
- The decedent’s interest passes to the estate or heirs as personal property under the probate/intestate rules.
- The personal representative or heir is typically an assignee with rights to distributions, not to management or voting, unless admitted as a member.
- The member is treated as dissociated; the LLC continues unless other rules or unanimous consent require a different result.
- If the LLC needs to pay out the decedent’s share, the estate may need to pursue distributions through the LLC’s normal procedures or seek a buyout if the other members choose or if state law or the operating agreement requires it.
Why this matters and typical problems that arise
If the operating agreement is silent, families often face delays, argument, and litigation. Common issues include (1) whether heirs can run the business, (2) how and when the estate receives value for the decedent’s interest, and (3) whether a forced sale or buyout is available and at what price. Silent operating agreements also create tax and valuation complications for the estate.
Practical options to address the silence
To avoid uncertainty, many California LLCs adopt one or more of the following:
- Express buy-sell provisions that require the LLC or the remaining members to buy the deceased member’s interest at a set formula or appraised value.
- Admission rules for transferees so heirs can become members only after satisfying specified conditions (e.g., consent of a majority or all members).
- Cross-purchase or redemption agreements funded by life insurance to provide liquidity to buy out the estate.
- Use of trusts or other estate planning tools so an heir can immediately receive economic and/or management rights per the member’s wishes.
Where to look in California law
For the statutory framework governing LLCs in California, consult the California Corporations Code, Division 7 (Limited Liability Companies): https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=CORP&division=7.&title=. For practical information about probate and estates, see the California Courts self-help page on estates and probate: https://www.courts.ca.gov/selfhelp-estates.htm. For general LLC filing and state guidance, see the California Secretary of State’s LLC page: https://www.sos.ca.gov/business-programs/business-entities/limited-liability-company.
When to consult an attorney
Talk with an attorney if any of the following apply:
- You want to draft or update an operating agreement to address death and transfers.
- Your family is trying to transfer or value a deceased member’s interest.
- Heirs or other members dispute who controls the LLC or how distributions should be handled.
- You need to prepare estate documents (wills, trusts) that interact with an LLC interest.
An attorney can review the LLC’s existing governing documents, the decedent’s estate plan, and applicable California statutes to recommend specific steps and draft buy-sell or admission provisions tailored to your business.
Disclaimer: This article explains general California law and common practices. It is for informational purposes only and is not legal advice. For advice about your specific situation, consult a licensed attorney in California.
Helpful Hints
- Check the operating agreement carefully — sometimes language on transfer, death, or buyouts exists but is easy to miss.
- If you plan to leave an LLC interest to family, consider using a revocable trust to avoid probate and speed transfer.
- Consider a buy-sell agreement funded by life insurance to provide quick liquidity for the deceased member’s estate.
- Document member admission rules so heirs know whether they can step into management roles.
- Keep valuations up to date if your LLC might require a buyout at death; stale valuations cause disputes.
- When in doubt, get a short written opinion from an attorney to explain how the California statutes and your LLC documents interact.