Avoiding Probate of LLC Membership Interests in Florida

An LLC membership interest owned by an individual at death is a probate asset. Without planning, the interest passes through the decedent’s estate, and a court must supervise the transfer before heirs can take ownership. For a closely held business or a real estate holding LLC, that process can paralyze operations for months while a personal representative obtains authority to act.

Florida law provides three ways to transfer an LLC membership interest outside of probate. The owner can draft the operating agreement with succession provisions that trigger an automatic transfer at death, assign the interest to a revocable living trust, or register a transfer-on-death designation under Chapter 711.

The Blechman Decision

Florida’s Fourth District Court of Appeal held in 2015 that an LLC operating agreement can pass a deceased member’s interest directly to the people it names, outside probate. In Blechman v. Estate of Blechman, 160 So. 3d 152 (Fla. 4th DCA 2015), the operating agreement said a deceased member’s interest “shall pass to and immediately vest in” his children. The court held that the interest never entered his probate estate.

The LLC in Blechman was a New Jersey company, and Florida’s choice-of-law rules required the court to construe the operating agreement under New Jersey law. The principle is Florida’s own: in Murray Van & Storage, Inc. v. Murray, 364 So. 2d 68 (Fla. 4th DCA 1978), the same court held that express contract language specifically addressing what happens to property at death defeats a conflicting devise.

The decedent in Blechman had amended his revocable trust to direct half the LLC’s distributions to a trustee for his girlfriend. Because the operating agreement’s default provision vested the interest in his children the moment he died, the court held that the trust amendment was an attempted disposition of property he did not own.

An LLC owner whose operating agreement already directs where the interest goes at death does not need a revocable living trust for probate avoidance alone.

Operating Agreement Succession Provisions

An operating agreement only avoids probate under Blechman if the succession language explicitly states what happens when a member dies. The provision should identify 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 language does not keep a membership interest out of probate. In Tita v. Estate of Tita, No. 4D21-1828 (Fla. 4th DCA Mar. 2, 2022), the same court held that an operating agreement did not override the member’s will. That agreement gave the company an option to buy the interest from the estate, which the court read as anticipating that the interest would pass through probate. A buyout option or a right of first refusal constrains what happens to the interest. Neither one moves it outside probate.

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 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 interest holder.

Does a Transfer-on-Death Designation Work for LLC Interests?

A transfer-on-death designation can work for an LLC membership interest, but only if the company agrees to register it that way. Florida’s transfer-on-death statute covers any “share, participation, or other interest … in a business,” which is broad enough to reach a membership interest. The company is the issuer, so the company is the one that registers the interest in beneficiary form.

The company decides whether to offer beneficiary registration at all. Section 711.508(1) says a registering entity need not offer it and need not accept a request for it. Where the company agrees, the designation goes on the membership certificate the company issues: the owner’s name, then “transfer on death” or “TOD,” then the beneficiary’s name.

A beneficiary designation decides who takes the interest, not what the taker can do with it. The operating agreement still has to say whether the beneficiary becomes a full member or only an assignee, and if it says nothing, Chapter 605’s default rules leave the beneficiary with the right to distributions and no vote. A designation also does not put the interest beyond the owner’s creditors. Section 711.509(2) says the transfer-on-death sections do not limit creditors’ rights against beneficiaries and other transferees.

Revocable Living Trust Ownership

A revocable living trust holds the LLC interest during the owner’s life and keeps it out of probate at death. Florida law lets a trust be a member: Section 605.0102(48) includes a trust in the definition of “person,” and a person can hold a membership interest. At death the successor trustee distributes the interest or keeps holding it, whichever the trust says, and no probate proceeding is needed.

Whether a particular LLC can take a trust as a member depends on its operating agreement. After formation, a person becomes a member as the operating agreement provides or with the consent of all the members. An agreement that bars transfers or requires unanimous consent can block an owner’s transfer to their own revocable trust. The agreement should also say how the trustee votes, manages, and takes distributions.

A revocable trust also covers incapacity, which an operating agreement provision does not. If the owner becomes unable to manage the interest, the successor trustee takes over the membership rights and no guardian has to be appointed. The trust can also hold the interest for a minor child or a spendthrift beneficiary rather than hand it over outright, which is what a succession provision usually does. That trust-owned LLC arrangement works only when the operating agreement’s transfer restrictions and the trust’s membership terms line up.

Sample Assignment of LLC Membership Interest

An assignment of membership interest transfers a member’s ownership in a Florida LLC to a new owner, either another individual or the trustee of the member’s revocable living trust. It is the instrument that funds a living trust with an LLC interest, and a well-drafted one also admits the new owner as a member rather than leaving that owner with distribution rights alone.

Transferring an LLC interest and becoming a member are two different steps under Florida law. An assignment of the transferable interest moves only the right to receive distributions: the new owner gets no vote, no management role, and no right to company records outside a dissolution. For an ordinary transfer, Section 605.0401(3) lets the operating agreement’s own admission terms control, and otherwise requires the consent of every member. After the transfer the assignor remains a member, keeping the rest of a member’s rights and all of a member’s duties.

An operating agreement can restrict transfers, and a transfer that breaks the restriction has no effect on a person who knew of the restriction, or had notice of it, when the transfer was made. The other members sign the assignment because Section 605.0401(3) admits a new member on their consent. The manager signs because a Florida LLC does not have to give effect to a transferee’s rights until the company knows about the transfer or has notice.

A member who transfers an entire transferable interest can also be expelled by the unanimous consent of the other members, and expulsion ends that person’s right to take part in managing the company. The sample assignment linked below carries both steps in one instrument, together with the consent of the members other than the assignor and bracketed alternatives covering an existing operating agreement.

When the Operating Agreement and Estate Plan Conflict

An operating agreement can override an estate plan the owner made later. If the agreement vests the interest in a named person at death and the owner’s will or trust directs the same interest elsewhere, the agreement wins and the beneficiary named in the will or trust receives nothing. An agreement that only gives the company a buyout right, or says nothing about death, leaves the interest to the will or trust and to probate.

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 reviewing the operating agreement. The owner may assume the will or trust governs all assets, unaware that the operating agreement already dictates the disposition of the LLC interest.

Whenever an LLC member updates an estate plan, the operating agreement needs a review and an amendment if the two no longer match. An agreement that defers to the member’s will or trust avoids the conflict. That agreement leaves the interest in the probate estate unless the owner has already put it in a trust or registered a beneficiary.

How Probate Avoidance Affects Charging Order Protection

Putting an LLC interest in a revocable trust does not change what a creditor can reach. Section 736.0505(1)(a) lets a creditor of the grantor reach a revocable trust’s property during the grantor’s lifetime to the extent it would not be exempt if the grantor held it directly. A judgment creditor therefore stands where it would stand against a directly held membership interest. Section 605.0503’s charging order rules do the protective work, and trust ownership does not switch them off.

The two routes differ on paperwork, not on creditor exposure. An interest held directly needs no trustee admitted as a member and no operating-agreement provision accommodating one. An interest held in a trust needs both, and in exchange the trust covers the owner’s incapacity.

The count of members does more work here than who holds the interest. Against a single-member LLC, a creditor who shows a court that distributions will not satisfy the judgment in a reasonable time can have the interest sold at a foreclosure sale under Section 605.0503(4). Section 605.0503(6) bars that sale where the company has more than one member, and adding a second member has that effect whether the interest is held individually or by a trust. Florida LLC asset protection turns on that count.

Practical Drafting Issues

A succession provision that names a recipient still leaves the terms of the transfer open.

An operating agreement should say whether the recipient takes the interest outright or the surviving members get a right of first refusal or a mandatory buyout. It should say what happens if the recipient dies before the member or disclaims the interest. The agreement should also settle whether the recipient steps into the member’s management role or holds an economic interest while the surviving members run the company.

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 is a private document. Unlike a will, it is not filed with the court at death. The designated successor should know where to find it and understand that it controls the disposition of the membership interest.