Business owners who are looking for ways to avoid probate and transfer their business ownership interests and effectively might want to consider making their limited liability company membership interests transferrable on death. While this procedure is not the right move in every situation, in some cases it is an appropriate way to handle the transfer of an LLC membership interest for both estate planning and business succession planning purposes.
Most people are familiar with securities or investment accounts which can be made payable on death and thus avoid probate. Similarly, according to Ohio law, an LLC membership interest owner can designate in the LLC’s operating agreement that a membership interest is transferable on death. The Ohio Uniform Transfer on Death Security Registration Act (Sections 1709.01 through 1709.11 of the Ohio Revised Code) allows securities to be designated as transfer on death and an LLC membership interest is included in the statute’s definition of a security. According to Section 1704.05 a registration in beneficiary form may be shown by the words “transfer-on-death” or the abbreviation “TOD,” after the name of the registered owner and before the name of a beneficiary. Further, Section 1709.09(A) states that “any transfer-on-death resulting from a registration in beneficiary form is effective by reason of the contract regarding the registration between the owner of the security and the registering entity and by reason of sections 1709.01 to 1709.11 of the Revised Code and is not testamentary.” This means that if transfer on death language is properly included in the LLC’s operating agreement that the membership interest will be transferrable upon death and will not be subject to probate.
If you would like further information about whether making your LLC membership interest transferrable on death is right for your specific situation, please get in touch with Fred Hatton (fhatton@pselaw.com) or one of the other business attorneys at Pickrel, Schaeffer & Ebeling.
