What Happens to My LLC If I Die? Single-Member LLCs

If you own a single-member LLC in Tennessee, have you thought about what happens if you’re no longer around to run it? Many assume their business will smoothly pass to their heirs, but without a plan, it may face dissolution, probate, or disputes.

The good news? You can take steps to protect your business and ensure it transitions the way you want. At Foust & Foust, PLLC, we help Tennessee business owners create clear succession plans that align with state laws. Let’s explore what happens to an LLC when the owner passes away—and how you can secure its future.

What is a Single-Member LLC?

A Limited Liability Company (LLC) is a popular business structure that combines the liability protection of a corporation with the flexibility of a sole proprietorship.

A single-member LLC (SMLLC) is simply an LLC with one owner. Unlike a sole proprietorship, an LLC is legally separate from its owner, which helps shield personal assets from business debts.

Why do People Choose an LLC?

Choosing an LLC gives business owners protection and flexibility. It shields personal assets from business liabilities, offers tax advantages, and enhances business credibility. But, owning an LLC also means planning for its future, especially when unexpected events arise.

• Liability Protection: Your personal assets (home, car, savings) are generally protected from business liabilities.
• Pass-Through Taxation: The business itself isn’t taxed; instead, profits and losses pass through to your personal tax return.
• Business Credibility: Having an LLC often looks more professional than operating as a sole proprietorship.

But, while an LLC protects you from personal liability, it doesn’t automatically take care of what happens to your business when you pass away. That’s where estate planning comes in.

The Default Scenario: What Happens Without a Plan

If a single-member LLC owner dies without a plan, the state of Tennessee has default rules for handling the business. Unfortunately, those rules may not align with what you want. Here’s what could happen:

The LLC May Be Automatically Dissolved

• Without a clear succession plan, Tennessee law may require the LLC to be dissolved upon the owner’s death.
• If the business is dissolved, its assets are liquidated and the proceeds are distributed according to state law—meaning the business itself ceases to exist.

The Business May Go Through Probate

• If the LLC has no designated successor or estate plan, the membership interest becomes part of the owner’s estate.
• That means the business could be tied up in probate for months (or even years), delaying access to assets and causing operational disruptions.

Increased Family Disputes

• If heirs disagree on who should take over or how assets should be distributed, legal battles could arise.
• Without a clear plan, your loved ones might not know what to do with the business or how to run it.

Tennessee Law May Override Your Wishes

• Even if your LLC’s operating agreement has provisions for succession, Tennessee laws could still impact how the transition happens—especially depending on the LLC’s formation date.
• LLCs formed before 1999, between 1999 and 2006, and after 2006 each fall under different legal frameworks, which could complicate the process.

Planning for Your LLC’s Future: Key Strategies

If you want to make sure your LLC continues operating after your passing (or at least goes to the right person), you need a solid plan. Here’s how to do it:

A. Create a Comprehensive Estate Plan

A well-structured estate plan ensures your LLC’s future is secure. A will alone may not be enough—integrating a revocable living trust allows for smoother ownership transfer, avoiding probate, and providing privacy for your business affairs, but it needs to align with the

LLC’s operating agreement.

B. Succession Planning within the LLC Operating Agreement

Your operating agreement should outline a clear succession plan. You should outline succession plans, whether naming a successor, allowing buy-outs, or using a Transfer-on-Death designation. Without these, Tennessee state laws may determine what happens, which may not match your intentions. You should also outline who takes over if something happens to you.

C. Beneficiary Designations

In some cases, an LLC owner can name a beneficiary to receive ownership interests. You should name a beneficiary for your membership interest, similar to a life insurance policy. However, this must align with Tennessee law and the operating agreement to avoid legal issues.

D. Regularly Review and Update Your Plan

Business and personal circumstances change over time. Regularly reviewing your estate and succession plans ensures your LLC’s future remains secure, accounting for life events such as marriage, divorce, business growth, or changes in Tennessee law. Regular reviews ensure your business succession plan remains relevant and effective. Laws change, and so do your circumstances.

Tennessee Business Owners: Take Action Now

If you own a single-member LLC in Tennessee, planning for the future of your business isn’t something you can afford to put off. Whether you want to keep your business running for your family or ensure a smooth transfer of assets, having a clear legal plan is essential.

At Foust & Foust, PLLC, we exclusively help Tennessee business owners secure their legacies. Our firm understands the unique legal landscape of Tennessee LLCs and can help you create a customized plan that ensures your business is handled the way you want.

Call us today at 865-203-4041 to schedule a consultation. Let’s make sure your LLC is protected and your wishes are honored.