Detailed Answer
Short answer: In Maine, a will cannot always override an LLC’s operating agreement. The law treats an ownership interest in an LLC as two separate things: (1) an economic or transferable interest (the right to distributions and profits) and (2) membership or governance rights (the right to vote and participate in management). A will can transfer the decedent’s economic interest, but it usually cannot unilaterally change contractual limits in the operating agreement that control admission of new members, buyouts, or rights on death.
Why this matters: Most operating agreements include rules for what happens if a member dies. Those rules may include a right of first refusal, a mandatory buyout at a set price, or a requirement that the remaining members approve any new member. Under the Maine Limited Liability Company Act (Title 31-B), many of these rules are enforceable and will govern what actually happens to the LLC interest when a member dies. See the Maine Limited Liability Company Act (Title 31-B) for the statutory framework for LLC membership and transferable interests: Maine Revised Statutes, Title 31-B.
Typical legal effect in practice
- Transfer of economic rights: The will generally transfers the decedent’s economic rights (distributions and share of profits) to the named beneficiary or the estate. The estate or beneficiary will usually collect distributions unless the operating agreement or statute provides otherwise.
- No automatic membership: The beneficiary named in a will does not automatically become a member with voting or management rights if the operating agreement requires member approval for admission. In that case the beneficiary is typically an assignee entitled only to economic benefits unless the other members consent to admit them as a member.
- Buyout and ROFR provisions: If the operating agreement contains a buy-sell clause, right of first refusal (ROFR), or other transfer restrictions, those provisions normally control. The company or the other members may be able to buy the interest from the estate instead of admitting the heir into the company.
- Probate and administration: To transfer ownership under a will, the estate representative will usually need to open probate or provide Letters Testamentary or similar documents. The LLC will often require that documentation before recognizing the estate or making distributions to the beneficiary.
Relevant Maine law and where to look
For LLC-specific rules, consult the Maine Limited Liability Company Act (Title 31-B) at the Maine Legislature website: https://legislature.maine.gov/statutes/31-B/title31-Bindex.html. For wills, probate, and administration procedures, consult the Maine Probate Code (commonly in Title 18-C): https://legislature.maine.gov/statutes/18-C/title18-Cindex.html.
Practical example
Hypothetical: Anna owns 40% of XYZ LLC in Maine and leaves her LLC interest to her son in her will. The operating agreement states that on a member’s death, the remaining members have the option to buy the deceased member’s interest at a formula price, and a new member may only be admitted by unanimous consent. Outcome: Anna’s son will inherit Anna’s economic interest under the will, but he will likely not become a voting member unless the other members agree. The remaining members can exercise the buy option and purchase the economic interest from Anna’s estate, or they can admit the son as a member if they choose.
What an executor or heir should do right away
- Locate and read the LLC operating agreement. This document controls transfer rules and buy-sell mechanisms.
- Gather company records. Identify membership certificates, capitalization schedule, and any buyout valuation formula.
- Open probate or obtain letters testamentary if you represent the estate. The LLC will usually need those documents to interact with the estate.
- Notify the LLC in writing of the member’s death and provide required probate paperwork and a death certificate.
- Consult counsel experienced in Maine business and probate law to interpret the operating agreement and advise about admission, buyouts, and valuation.
When disputes arise
Disputes commonly focus on whether the heir should be admitted as a member, how to value the interest, or whether the operating agreement’s transfer restrictions are enforceable. Courts in Maine will enforce clear operating agreement language unless there is a legal defect or unconscionability. If members disagree, litigation or mediation may be necessary to resolve whether the will’s disposition controls the actual transfer of rights.
Because each company agreement and estate situation differs, speak to an attorney before taking action that could be costly or irreversible.
Helpful Hints
- Always read the operating agreement first. It usually controls what happens at a member’s death.
- Keep an updated estate plan that coordinates with business documents, including buy-sell agreements and life insurance that funds buyouts.
- If you want a family member to run the business, build that right into the operating agreement now rather than relying on the will later.
- As executor, collect the LLC documents and contact the company promptly; delays can trigger deadlines in the operating agreement.
- Expect that an heir may be treated as an assignee with only economic rights unless the other members vote to admit them.
- Consider tax consequences. A forced buyout or change in membership can have estate, income, and gift tax effects—talk to a tax advisor.
- If the operating agreement is silent on death, Maine LLC law will supply default rules. Still consult an attorney to see how the defaults apply.
- Document all communications with the LLC and other members in writing to protect the estate’s position.
Disclaimer: This article provides general information about Maine law and does not constitute legal advice or create an attorney-client relationship. For advice about a specific situation, consult a licensed Maine attorney who handles business succession and probate matters.