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Comprehensive Guide to Understanding Inheritance Law

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Estate planning is vital in securing your family’s future. This proactive measure ensures that your assets will be distributed according to your wishes after you pass away and reassures you that your family will be cared for.

February 26, 2024
Author: NCH

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It may seem like a straightforward process, but there are several factors that you must consider when creating an estate plan, like your state’s inheritance laws.

Inheritance laws govern how your assets will be administered if you die without a will or estate plan. These regulations vary depending on where you live. Because of this, you must understand how they work and how they will affect your business. 

In this blog, we’ll explore inheritance laws and the two systems that govern them. We’ll also discuss how statutes like these affect Limited Liability Companies (LLCs).

Read on to learn more about the nuances of estate planning and how they intersect with your business. 

What Are Inheritance Laws?

Inheritance laws have statutes determining how your properties and assets will be distributed among your living family members if you die intestate. Intestate dying means passing away without a will or a trust to administer your estate.

These legislations vary from one jurisdiction to another. But generally, two systems govern them:

Community Property

In this system, each spouse automatically owns half of their earnings while married. This means that if one passes away intestate, half of the estate they left behind will be given to their partner. The other half will then be distributed to other beneficiaries like their children, parents, and siblings.

Properties that were obtained before the marriage are not included in this policy. Any inheritance or gifts that you received before you got married will not be subject to division. 

Nine states follow the community property system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

But what if you died with a valid will in a community property state? In this case, your estate will be administered according to your wishes.

Each state has its own criteria for a valid will. But generally speaking, a valid will must be in writing, signed by the person who made it or the testator, and witnessed by two individuals who are not beneficiaries of the will. 

Common Law 

Common law is the inheritance system that most states use. Under this framework, spouses do not automatically inherit half of their partner’s estate. However, this does not necessarily mean that they have no inheritance rights.

Most common-law states have provisions allowing living spouses to claim one-third to one-half of the deceased’s holdings. Some places even use the length of a couple’s marriage to determine how much they can inherit.

Knowing which system your state uses is the first step to understanding how inheritance laws work. 

Examining The Impact of Inheritance Laws on Limited Liability Companies (LLCs)

Inheritance laws have significant implications for LLCs, particularly in terms of ownership succession and transfer of membership interests upon the death of a member. 

An LLC typically has an operating agreement outlining the procedures and protocols for distributing a deceased member’s ownership stake. But if there’s no provision or operating agreement in place, the state’s inheritance laws will determine what will happen to their interest in the company.

For example, if an LLC member in Nevada passes away intestate, their share will most likely go to their spouse since Nevada is a community-property state. This policy can significantly affect the company’s management continuity, especially if the deceased member held a significant role in the decision-making of the LLC. 


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Understanding how your state’s inheritance laws work will help you find a solution for managing the death of a member. 

Solving The Issue of Succession

There are plenty of ways you can solve your LLC’s issue of succession. One is by including a “Transfer of Membership” clause in your operating agreement wherein members will name who they think should receive their shares upon passing.

You could also include a buy and sell agreement. The primary purpose of a buy and sell stipulation is to smooth ownership transitions for when a member of the LLC dies, retires, or decides to leave the company. 

There are two types of buy and sell agreements: cross-purchase and entity-purchase.

Under the cross-purchase agreement, the remaining members of the LLC will be allowed to purchase the deceased member’s membership interest at a pre-determined price. Meanwhile, entity-purchase agreements allow the LLC itself to purchase the stake. 

Regardless of your chosen clause, both will help you maintain the stability and continuity of your LLC during unexpected events. 

It’s worth noting that there are several factors you must consider when amending your operation agreement. There are nuances to inheritance laws that only a business specialist understands. 

With this in mind, you should consult them before making any changes to your LLC’s structure.

Start Planning For Your Future

Whether you have a large estate or not, knowing your state’s inheritance laws is vital for securing your family’s and your business’s future. 

Without a robust estate plan, your assets will fall into the hands of the state. 

In most cases, intestate succession can create disputes between family members. Moreover, the probate process itself can be lengthy and expensive. It could take months or even years before your loved ones receive what’s rightfully theirs. 

Aside from this, estate planning can also help you preserve the integrity of your LLC. By drafting a succession strategy, you can rest easy knowing that your business will continue to thrive even if you’re no longer at the helm. 

NCH is here to assist you if you need help understanding your state’s inheritance laws. We are one of the leading business formation service providers in Nevada. Our business specialists are dedicated to helping entrepreneurs like you succeed and secure your financial future. 

We will help you create an estate plan that ensures all of your holdings, from properties to ownership stakes, will be distributed according to your wishes. 

Start planning for your future today with NCH. To learn more about our estate planning services, visit our website here or call us at 1-800-508-1729.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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