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Why Your LLC Operating Agreement Might Matter More Than Your Will
Your LLC Operating Agreement Might Matter More Than Your Will
Camarillo Estate Planning Attorney Eric Ridley
When people think about estate planning, they focus on wills and trusts. Those documents matter, but if you own a business, especially an LLC, there’s another document that may control what actually happens to your company when you die: your operating agreement.
Most business owners are surprised to learn their will doesn’t automatically determine who inherits or runs the business. In many cases, the operating agreement governs first. If it hasn’t been carefully drafted or updated, it can override your intentions entirely and leave your family in a difficult position.
The Document That Actually Controls Your Business
An LLC operating agreement is the contract that sets the rules for ownership, management, and transfer. It typically includes provisions addressing what happens if an owner dies, becomes disabled, or exits the company.
If that agreement says ownership can only pass to certain people, or requires approval from other members, your will cannot simply override it. Even if your will leaves your business interest to a spouse or child, the operating agreement may limit what they actually receive. In some cases, heirs inherit only the financial value of the business, not the right to participate in management.
What Goes Wrong When These Documents Aren’t Coordinated
Outdated or incomplete operating agreements create predictable problems. Heirs may be blocked from management. Business partners may gain unexpected control. Buy-sell provisions may force a sale at an unfavorable price. Family members and co-owners end up in disputes at the worst possible time.
All of this delays estate administration, reduces business value, and strains relationships that were already under stress.
Coordination Is the Point
A well-designed estate plan coordinates your personal documents with your business documents. Your will, trust, and powers of attorney need to align with your operating agreement so they work together rather than conflict.
This is especially important if your ownership structure, partners, or goals have changed since you first formed the company. What made sense at formation may not reflect what you want today.
Let’s Talk
If you own a business, your estate plan needs to address it clearly and strategically. I work with business owners to review their operating agreements alongside their estate planning documents to make sure everything is aligned. Book a Peace of Mind Planning Session. I’ll answer your questions, go over your options, and explain my flat-fee pricing. Mention this article and I’ll waive the $350 session fee.
