What if the Will and an LLC Operating Agreement Conflict? Which Controls?

Generally, the terms of a Will control the disposition of a decedent’s assets at death (unless the assets are governed by a trust, a beneficiary designation or a payable on death or another similar account). Assume a decedent owns a membership interest in a limited liability company (“LLC”) at the time of his or her death. It would appear that the disposition of such an interest would be governed by the terms of their Will. Not so fast!

In Blechman v. Blechman, Bertram Blechman (“Bertram”) died, survived by an estranged wife of 60 years and 2 children, Robert and Cathy. He died owning an interest in Laura Investments, LLC, (the “LLC”). In his “pour over” Will, Bertram distributed all of his assets from his probate estate into his revocable trust. In his original trust he never specifically mentioned the LLC. However, Bertram executed a trust amendment which provided that 50% of the distributions from the LLC should be placed in a trust for his longtime girlfriend, Arlene, to help pay for her living expenses. The balance, or residuary, of the trust was to be distributed to Bertram’s children.

Bertram’s children, Robert and Cathy, read the LLC operating agreement which stated that IF the LLC interest was NOT distributed under his Will to Bertram’s immediate family, defined as “living children and issue of any deceased child”, then the membership interest IMMEDIATELY vested in Bertram’s children.  ALL of the LLC interest did not pass DIRECTLY to Bertram’s children (even though they were residuary beneficiaries of the trust). Thus, in accordance with the LLC operating agreement, the LLC interest was not an asset of Bertram’s probate estate and immediately vested in Robert and Cathy.

The court noted that the LLC operating agreement was a contract and not a Will and even though the operating agreement contained provisions that related to death it was NOT a testamentary devise but a contract. The decedent, by signing the operating agreement, created an immediate property interest for his children.

ADVICE: Always, always read the terms of the associated corporate, partnership or LLC agreements. Many provisions in such agreements may be “boilerplate” but may control how the property is distributed at death. Make sure that the distribution is how YOU want it to be distributed. You may be able to amend the agreements prior to your death but once you die such agreements are binding on the next generation.


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