The court determined in Tita v. Tita, that a specific bequest in a will overrides language in a limited liability company operating agreement. See a discussion on this matter in another case in a prior blog here.
John Tita (“Decedent”) signed his Last Will and Testament (“Will”) in 2017 and his surviving spouse was Eva (“Wife”). Two of his 6 children were Andre and Sandra. Decedent provided in his Will that all of his interest in Leyton Hills Properties, LLC, a Utah LLC (“LLC”) would be distributed to Andre and Sandra, per stirpes. The residue was left to Wife. At the time of the Decedent’s death, the LLC was owned 39.5% by Decedent, 39.5% by Eva, 11% by Andre, 5% by Sandra and 5% by another son, Michael.
The LLC Operating Agreement (“Agreement”) provided that, upon the death of a member, the members of the LLC could exercise a Death Buy Out Provision (“Death Provision”). Unless the LLC exercised its right under the Death Provision, the successor in interest would only receive an economic right to receive distributions unless a majority of Members voted to admit the successor in interest as a member.
The Death Provision provided that the LLC, at its option by providing written notice to the Decedent’s estate within 180 days of the death, could purchase and redeem the Decedent’s membership interest. Wife and Michael received an order from the Utah court declaring that the LLC had exercised its option to purchase and redeem the Decedent’s membership interest.
Andre and Sandra, as named co-personal representatives of the estate filed a petition for administration in Florida. The Florida probate court determined that the Utah’s court decision was binding on the estate and those rights were preserved in the Florida proceeding. Andre and Sandra were then appointed as co-personal representatives.
Wife argued that, because the LLC exercised its option to purchase Decedent’s membership interest, the specific devise under the Will to Andre and Sandra failed. Thus, the LLC sales proceeds paid to the Decedent’s estate under the Death Provision become part of the residuary etate payable to Wife.
The lower court ruled that the devise to Andre and Sandra was a specific devise and the proceeds should be distributed to Andre and Sandra. The Decedent intended to leave his interest in the LLC to Andre and Sandra, the interest in the LLC was in existence at the time of Decedent’s death and was part of the Decedent’s estate.
Wife appealed and argued that, because the Agreement specifically addressed the disposition of a membership interest, such provision prevented a specific devise under the Will. The appellate court disagreed. The Agreement “lacks the specific language that would override the decedent’s disposition of the membership interest in his will”.
The court distinguished the Blechman case, a Florida case, which ruled that the LLC operating agreement DID override the language in a will. The court noted that the Blechman operating agreement provided that the “[d]eceased’s membership interest immediately passed outside of probate to his children upon his death, thus nullifying the testamentary devise.”
The appellate court ultimately determined that the proceeds were payable to Andre and Sandra.
ADVICE: Estate planning should always include consideration of LLC operating agreements and all other entity agreements. These documents should be coordinated with your estate planning documents to make sure the terms are consistent with your desires.