What Happens to an LLC When a Member Dies?

The Default Rule: Assignee Interest

Under the Revised Uniform Limited Liability Company Act (RULLCA) and most state LLC statutes, when an LLC member dies, the deceased member's interest passes to their estate or designated beneficiary — but only as an assignee interest. An assignee receives the economic rights associated with the membership interest: the right to receive distributions if and when the LLC makes them, and the right to allocations of profit and loss for tax purposes.

What the assignee does not receive are governance rights. An assignee cannot vote on company matters. An assignee cannot participate in management decisions. An assignee cannot access the company's books and records. An assignee cannot approve new members, consent to major transactions, or participate in any decision-making process. The assignee sits outside the company's governance structure entirely.

This default rule exists to protect the remaining members. LLC membership is a contractual relationship based on trust and mutual agreement. The law does not force existing members to accept new partners they did not choose. Instead, it separates the economic interest (which passes automatically) from the governance rights (which require consent).

The Operating Agreement Controls

The default rule applies only when the operating agreement is silent. A well-drafted operating agreement can override the default in several ways. It can provide that an heir automatically becomes a full member (with both economic and governance rights). It can require the remaining members to vote on whether to admit the heir as a full member. It can trigger a mandatory buy-sell, requiring the LLC or remaining members to purchase the deceased member's interest at a predetermined price. Or it can establish a combination of these options.

The critical point is that the operating agreement — not the will, not the trust, not state default law — determines the outcome. If the operating agreement says "upon a member's death, the remaining members shall purchase the deceased member's interest at fair market value within 90 days," that provision controls regardless of what the will says.

Single-Member LLCs: The Greatest Risk

Single-member LLCs face a unique and often catastrophic risk when the sole member dies. There are no remaining members to continue the business. There is no one to manage the LLC's affairs. And in some states, the death of the sole member triggers an automatic dissolution of the LLC.

Even in states where dissolution is not automatic, the practical consequences are severe. The LLC's bank accounts may be frozen when the bank learns of the member's death. Contracts may contain provisions that terminate upon a change in ownership or control. Employees, vendors, and customers may be uncertain whether the business will continue, leading to disruption and loss of value.

The LLC membership interest becomes an asset of the deceased member's estate and must go through probate (unless it was held in a trust). The executor or personal representative must manage the business during the probate process, which can take months or years. If the executor is not familiar with the business, the delay and uncertainty can destroy much of the business's value.

The solution for single-member LLCs is straightforward but often overlooked: the operating agreement should name a successor member or manager who can step in immediately at the owner's death, the membership interest should be held in a revocable trust to avoid probate, and the trust document should authorize the successor trustee to manage or sell the business.

Multi-Member LLCs: The Frozen Heir

In multi-member LLCs, the business typically continues operating after a member's death. The surviving members carry on with the business. The deceased member's family receives an assignee interest. And the family waits — sometimes indefinitely — to see if the remaining members will admit them as full members, offer a buyout, or simply continue making (or not making) distributions.

This "frozen heir" problem is one of the most common consequences of poor succession planning. The family has a valuable interest on paper but no practical way to monetize it. They cannot force a sale. They cannot force distributions. They cannot participate in management. And they cannot find a buyer for an assignee interest in a private LLC — because no rational buyer wants an interest with no control and no guaranteed income.

The Operating Agreement Provisions That Matter

Every LLC operating agreement should address the following questions related to a member's death. First, does the heir become a full member or an assignee? If an assignee, under what conditions can they become a full member? Second, is there a mandatory buy-sell that triggers at death? If so, what is the valuation method and how is the buyout funded? Third, who manages the LLC during the transition? Is there a designated successor manager? Fourth, what happens in a single-member LLC? Does the operating agreement name a successor member and authorize continuation of the business?

These provisions should be coordinated with each member's personal estate plan. The will or trust should acknowledge the operating agreement's provisions and not make inconsistent promises about the business interest.

The Bottom Line

When an LLC member dies, the outcome depends almost entirely on the operating agreement — not the will, not the trust, and not state default law. Without planning, heirs receive a passive assignee interest with no control, no information, and no exit. With planning, the transition can be smooth, funded, and fair to everyone involved. Every LLC member — whether they own 100% or 10% — should ensure their operating agreement addresses death, their estate plan is consistent with the operating agreement, and a buy-sell agreement with life insurance funding is in place.