Friday, June 11, 2021
In Potter v. Potter, James Potter owned an interest in a Maryland limited liability company. The members of the company agreed to who should receive each member's ownership interest upon death of a member. After Mr. Potter passed away, there was a dispute over whether his interest would pass to the person named in the LLC agreement or to his estate.
The Circuit Court found that the operating agreement was enforceable and that the designee was the rightful owner of the interest.
However, the Court of Special Appeals of Maryland reversed and found that a membership in a Maryland Limited Liability Company is an interest in property that is subject to the provisions of Maryland's testamentary and probate laws. Md. Code, Est. & Trusts § 1-102(r).
The Court also found:
A provision in the operating agreement of a Maryland limited liability company that purports to "automatically and immediately" transfer a member's interest to a designated successor upon the member's death is not effective unless the operating agreement was executed in accordance with the provisions of Maryland's statute of wills, which is codified as Md. Code, Est. & Trusts § 4-102.
See Stuart Levine, Denise Potter et al. v. Ruby Potter, Case No. 671, 2018 Term Opinion by Kehoe, J., SL News, May 26, 2021.
Special thanks to Linda Couch, a recent law school graduate from the Mitchell Hamline School of Law, for bringing this Article to my attention.