Avoiding Probate of LLC Membership Interests in Florida

An LLC membership interest owned by an individual at death is a probate asset unless the owner has taken steps to transfer it outside of probate. Without planning, the interest passes through the decedent’s estate, requiring court-supervised administration before heirs can receive ownership. For a closely held business or a real estate holding LLC, probate creates delays that can paralyze operations for months while the personal representative obtains authority to act on behalf of the estate.

Florida law provides three primary methods for transferring LLC membership interests outside of probate: drafting the operating agreement with succession provisions that trigger an automatic transfer at death, assigning the membership interest to a revocable living trust during the owner’s lifetime, or registering the interest with a transfer-on-death designation under Chapter 711 of the Florida Statutes. Each approach has different implications for asset protection, control during lifetime, and coordination with the owner’s broader estate plan.

The Blechman Decision

The Florida Fourth District Court of Appeal’s 2015 decision in Blechman v. Estate of Blechman, 160 So. 3d 152 (Fla. 4th DCA 2015), established that an LLC operating agreement can direct the transfer of a deceased member’s interest outside of probate. The court held that because operating agreements are governed by contract law, a provision specifying that a member’s interest “shall pass to and immediately vest in” designated recipients at death creates a binding non-probate transfer. The membership interest never enters the decedent’s probate estate.

The Blechman court further held that this contractual transfer overrides a conflicting provision in the decedent’s will or revocable trust. The decedent in that case had directed by trust amendment that his LLC interest pass in part to his girlfriend. The court ruled the operating agreement’s default succession provision controlled, and the trust provision was nullified as an attempted disposition of property the decedent no longer owned at death.

This decision changed Florida LLC planning. Before Blechman, transferring the membership interest into a revocable living trust was the only reliable method for avoiding probate of an LLC interest. After Blechman, the operating agreement itself can serve as the succession instrument, eliminating the need for a trust in some circumstances.

Operating Agreement Succession Provisions

For the operating agreement to function as a probate-avoidance tool under Blechman, the language must explicitly address what happens to a member’s interest upon death. The provision should identify the specific recipients, state that the transfer occurs immediately upon death, and use language indicating that the interest “shall pass to and immediately vest in” the designated person or persons.

Vague or ambiguous language will not achieve probate avoidance. The Fourth DCA distinguished Blechman from later cases where operating agreements contained buy-sell provisions or death buyout options without specifying an immediate vesting of the interest in a named individual. In Tita v. Tita, 334 So. 3d 646 (Fla. 4th DCA 2022), the court found that an operating agreement anticipating a testamentary transfer through the member’s estate did not override the decedent’s will, because it lacked the explicit automatic-transfer language present in Blechman.

The operating agreement should also address what type of interest the recipient receives. The agreement can provide that the designated recipient becomes a full member with voting and management rights, or it can limit the recipient to an assignee status with only economic rights. For multi-member LLCs, the remaining members may want the right to approve whether the recipient is admitted as a full member or remains a passive economic interest holder.

Transfer-on-Death Designations

Florida’s Uniform Transfer-on-Death Security Registration Act (Chapter 711) provides a separate mechanism for designating a beneficiary of an LLC membership interest. The owner registers the interest with a TOD designation, naming the person who will receive it at death. The transfer occurs automatically without probate, similar to a pay-on-death designation on a bank account.

A TOD designation can be implemented through the operating agreement or through a separate membership interest certificate issued in the form “Owner, transfer on death to Beneficiary.” The TOD approach is straightforward for single-member LLCs where there are no other members whose consent is required and no complex multi-generational succession plans.

The limitation of a TOD designation is that it controls only who receives the interest, not what rights they receive. The operating agreement must still define whether the TOD beneficiary becomes a full member or merely an assignee. If the operating agreement is silent, the default rules under Chapter 605 apply, and the recipient receives only an assignee’s economic interest without management or voting rights.

Revocable Living Trust Ownership

Assigning an LLC membership interest to a revocable living trust remains the most comprehensive probate-avoidance strategy. The trust owns the interest during the member’s lifetime, and at death, the successor trustee distributes or continues to hold the interest according to the trust terms. No probate proceeding is required because the trust, not the individual, is the legal owner.

A trust cannot technically “own” an LLC interest in the same way an individual does. Instead, the trustee becomes a member of the LLC in the trust’s capacity. The operating agreement must expressly permit trust ownership and define how the trustee exercises membership rights, including voting, management authority, and the right to receive distributions. An operating agreement that restricts transfers or requires unanimous consent for new members may inadvertently block a transfer to the member’s own revocable trust.

Trust ownership offers advantages beyond probate avoidance. A revocable trust provides for management of the LLC interest during the owner’s incapacity, not just at death. It also allows for more complex distribution schemes, such as holding the interest in a continuing trust for a minor child or a spendthrift beneficiary, rather than the simple outright transfer that an operating agreement succession provision provides.

When the Operating Agreement and Estate Plan Conflict

The Blechman decision creates a potential trap. If the operating agreement contains a succession provision and the owner’s will or trust directs the same interest to a different person, the operating agreement controls. The intended beneficiary under the will or trust receives nothing.

This conflict arises most often when the operating agreement was drafted at formation with default succession language and the owner later executes an estate plan without coordinating the two documents. The owner may assume the will or trust governs all assets, unaware that the operating agreement already dictates the disposition of the LLC interest.

The solution is coordination. Whenever an LLC member updates an estate plan, the operating agreement should be reviewed and, if necessary, amended to align with the intended disposition. Whenever the operating agreement is amended to change succession provisions, the estate plan should be reviewed for consistency. An operating agreement that defers to the member’s estate plan by providing that the interest passes according to the member’s will or trust avoids the conflict entirely, though it means the interest will go through probate if the member dies without a trust.

Asset Protection Considerations

Probate avoidance and asset protection are separate objectives, but they interact in important ways for LLC membership interests.

An LLC interest held in a revocable trust does not receive charging order protection during the grantor’s lifetime because a revocable trust is treated as the grantor’s alter ego. Creditors of the grantor can reach assets in a revocable trust as easily as they can reach individually owned assets. The asset protection value of the LLC comes from the LLC structure itself, not from trust ownership.

If the owner’s primary concern is creditor protection rather than probate avoidance, the operating agreement succession approach may be preferable. The membership interest remains individually owned during life, preserving the straightforward application of § 605.0503’s charging order protections for multi-member LLCs. At death, the operating agreement transfers the interest to the designated recipient without probate.

For owners who need both probate avoidance and lifetime asset protection, the optimal structure depends on whether the LLC is single-member or multi-member. A single-member LLC already faces the limitation that courts may order foreclosure of the membership interest under § 605.0503. Adding a second member strengthens charging order protection regardless of whether the interest is held individually or in trust. The LLC article provides a broader overview of how entity structure affects creditor remedies.

Practical Drafting Considerations

An operating agreement designed for probate avoidance should address several practical issues beyond identifying the successor.

The agreement should specify whether the designated successor receives the interest outright or whether the remaining members have a right of first refusal or mandatory buyout option. It should clarify what happens if the designated successor predeceases the member or disclaims the interest. It should address whether the successor steps into the member’s management role or whether management authority remains with the surviving members while the successor holds only an economic interest.

For real estate holding LLCs, the agreement should also address the mortgage. Many commercial and residential loans contain due-on-sale clauses that could be triggered by a change in LLC membership. The operating agreement should anticipate this issue and provide a mechanism for the successor to address lender requirements without disrupting the probate-avoidance transfer.

The operating agreement should be signed by all members and stored alongside the other formation documents. Unlike a will, which is filed with the court at death, the operating agreement is a private document. The designated successor should know where to find it and understand that it controls the disposition of the membership interest.