Missouri Real Estate Lawyer

I have formed a lot of Missouri LLCs, especially for real estate investors. Even a single parcel of real estate is typically an asset of significant value. Yet few clients consider what will happen to that parcel, or several parcels, owned by an LLC if the client becomes incapacitated, or worse. Few think about who will run their LLC if they cannot, much less who will inherit their membership interest in the LLC.

While your spouse, child or friend might be able to perform some functions on behalf of your LLC in the event you become incapacitated, as a legal matter, they cannot just step in and completely run the LLC. For example, unless you provide for it upfront, or unless they obtain a court order, they cannot sign any documents on behalf of the LLC or enforce any of the rights that you have as the owner/manager of the LLC.

This means that if you are in the middle of a renovation or a sale of the real estate, they cannot enter into contracts on behalf of the LLC or close on a sale. If your LLC owns rental property, they have no right to the rent payments, and they cannot just sell off the property. On a more simple level, they will not be able to access the bank account of the LLC to pay its bills or to perform other financial transactions on behalf of the LLC. This is obviously not a good situation for you, but it’s even more concerning for those who must try to carry on the work of the LLC or decide what to do with LLC property.

Whether your incapacity is temporary or permanent, you can avoid such uncertainties by owning your LLC membership interest through a simple trust. A simple trust allows you to run the LLC as you would if you were the direct owner, while at the same time spelling out who has the authority to step into your shoes and run the LLC if you cannot. Equally important, a simple trust provides for the inheritance of your membership interest and typically avoids the need for your membership interest to be administrated through a probate court.

The trust indentures can, for example, either distribute your membership interest to the beneficiary or beneficiaries of the trust, who will then become members of the LLC, or the indentures can provide for someone to replace you as trustee, and the trust will continue on as the member of the LLC for the benefit of the beneficiaries that you have designated.

The operating agreement does not confer your membership interest to your heirs, and they do not automatically inherit your membership interest. Without a trust, your membership interest must be admitted to probate. If you have a will, the probate court will consider that document in determining who will inherit your membership interest, but who will inherit it may not be clear if your will does not account for your membership interest. If you do not have a will, then who will inherit your membership interest will be determined by Missouri’s intestate statutes.

Thinking about these considerations upfront when forming your LLC, or even now if you already have an LLC, is critically important to the protection of your personal and business assets and to the peace of mind and certainty of those who will have to deal with a situation in which you may not be able to manage your LLC.

The information contained in this article is for informational purposes only and is not intended as legal advice. Your circumstances are likely unique, and you should therefore consult with legal counsel prior to implementing any of the concepts discussed in this article.

Michael Sewell, MBA and JD, has practiced law in Missouri since 2005, and he is the owner of Sewell Law, LC, which helps clients with business formations, private securities offerings, and litigation.

Feel free to contact Michael through www.stlouisllcattorney.com.

This article was published on July 4, 2015.
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