Limited liability companies (LLCs) are a unique type of business structure that combines the characteristics of partnerships and corporations. As its name suggests, it offers limited liability, which explains why many Florida residents form LLCs for estate planning purposes.
Is it possible to draft an LLC operating agreement to avoid probate in Florida? Read on to discover.
Forming a Florida Limited Liability Company – Understanding Operating Agreements
The core elements of a Florida LLC are flexibility and limited liability. Owning and running an LLC does involve the same formalities as those required from corporations, which allows you to save time and money with more important aspects.
LLC owners are referred to as “members.” This type of business entity limits the member’s personal liability for the company’s debts and lawsuits. On the other hand, the company is protected from its members’ personal liabilities.
Once an asset is titled in the name of an LLC, it is no longer considered personal property. LLC property is part of the entity itself, and each member owns an interest share in the company.
Depending on the entity’s purpose, it is possible to form a single-member LLC or a multi-member LLC. If the primary goal is asset protection and estate planning, the best approach is to transfer assets to a multi-member LLC, as they enjoy greater protection against creditors.
Are Business Interests in a Florida LLC Subject to Probate?
Any assets held solely in a deceased person’s name at the time of death are considered probate assets in Florida. If a person dies owning an interest share in an LLC, it will likely go through probate court before distribution to the rightful beneficiaries.
A common solution to avoiding probate in the distribution of LLC interest shares is to transfer its ownership to a trust. Hence, the trust “replaces” the member as an interest owner.
As any property titled in the name of a trust is not subject to probate, the interest share held in the name of the trust can be distributed according to the terms expressed in the trust instrument – all without court supervision.
This solution used to be the only method available to avoid going through probate to transfer business interests in an LLC upon death. In 2015, a decision held by the Fourth District Court of Appeal of Florida created other possibilities to avoid probate through an LLC’s operating agreement.
Can LLC Operating Agreement Avoid Probate in Florida? – The Verdict
In the Blechman v. Estate of Blechman case, Florida’s Fourth District Court of Appeal decided that the operating agreement of an LLC could be used to transfer a deceased member’s interest in the company to beneficiaries outside of probate court.
The Court considered the fact that LLC operating agreements are binding documents. As long as the agreement features explicit language to legally direct the transfer of interest in the company to specific recipients, it does not need to go through probate.
With a proper operating agreement, a member’s interest in the LLC immediately vests in the name of the recipient upon death.
This method is a valuable solution to avoid conflicts with dispositions in the will or provisions set up in a trust.
LLC Operating Agreement vs. Probate Avoidance in Florida – Immediately Contact Jurado & Associates, P.A.
A well-versed estate planning attorney from Jurado & Associates, P.A. is willing to help you avoid probate in Florida. Call us today at (305) 921-0976 or email [email protected] for expert legal guidance.