What happens if there is no operating agreement for the LLC—do the LLC funds automatically become part of the estate? – North Carolina

Short Answer

No. In North Carolina, an LLC’s bank account is owned by the LLC, not by the member personally, so the funds do not automatically become estate property just because the member died or because there is no operating agreement. What typically becomes part of the estate is the decedent’s LLC interest (the membership/financial interest), and the personal representative may need additional documentation or a court order to prove authority to act for the LLC or to transfer the decedent’s interest. Banks often require this because releasing LLC funds to an estate can be improper unless the estate has the right to control the LLC or the LLC is being wound up.

Understanding the Problem

In North Carolina probate, the key question is whether money sitting in a bank account titled in an LLC’s name can be treated as estate property when a member dies and there is no operating agreement. The decision point is whether the personal representative is trying to collect a decedent-owned asset (the LLC interest) versus trying to take possession of an LLC-owned asset (the LLC’s bank funds). The answer usually turns on who has legal authority to act for the LLC after the death and what default rules apply when the LLC’s internal documents are missing or silent.

Apply the Law

North Carolina generally treats an LLC interest as personal property similar to a partnership-type interest. When a member dies, the estate may succeed to the decedent’s transferable/financial rights in the LLC, but the LLC’s separate property (including its bank account) remains owned by the LLC. If there is no operating agreement, the default rules in North Carolina’s LLC statute govern how the LLC continues, who can manage it, and what happens to the deceased member’s rights. Practically, the forum that often resolves “who has authority” disputes is the Clerk of Superior Court in the estate proceeding, and banks commonly ask for certified letters and, in some cases, a specific court order addressing the LLC account.

Key Requirements

• Separate ownership: An LLC’s funds belong to the LLC as a separate legal entity, even if the decedent was the only member.
• Estate receives an LLC interest (not the LLC’s cash): The estate typically inherits the decedent’s membership/financial interest and whatever rights the law or LLC documents provide upon death.
• Authority documentation: A bank may require proof that the person requesting funds has authority to act for the LLC (for example, as the current manager/member, or as a court-authorized fiduciary acting to wind up the LLC).

What the Statutes Say

• N.C. Gen. Stat. § 41-2.1 (Right of survivorship in bank deposits) – Shows that bank accounts can pass outside the estate by survivorship if properly set up; this is a common reason banks scrutinize ownership and authority before paying out.

Analysis

Apply the Rule to the Facts: The discovered account is titled in the decedent’s LLC’s name, so the starting point is that the money is the LLC’s property, not the estate’s property. Even with probate paperwork, a bank may refuse to release LLC funds to the estate because letters testamentary/administration prove authority over estate assets, not automatic authority over a separate entity’s assets. If the decedent was the only member or the controlling member, the estate may still need to document who now has the right to act for the LLC (or to wind it up) before the bank will move the funds.

Process & Timing

1. Who files: The personal representative (or counsel) typically gathers entity records. Where: The Clerk of Superior Court handling the estate (and, for entity status, the North Carolina Secretary of State’s business records). What: Certified letters testamentary/letters of administration, death certificate, and LLC documents (Articles of Organization; any written consents; member/manager records). When: As soon as the account is discovered, because estate closing and final accounting may need to be updated.
2. Confirm who can act for the LLC: Determine whether the LLC is member-managed or manager-managed, whether there are other members/managers, and whether the LLC should continue or be wound up. If the bank wants “court authorization,” the next step is often requesting an order from the Clerk of Superior Court clarifying the personal representative’s authority to take specific actions related to the LLC interest and, if appropriate, to wind up and collect remaining funds.
3. Document the transfer or wind-up: If the LLC is being wound up, the LLC (acting through the proper person) typically pays valid LLC obligations and then distributes remaining value according to the ownership/estate rights. The bank may then release funds to the LLC’s authorized signer or to an account established for the LLC’s wind-up, rather than directly to the estate.

Exceptions & Pitfalls

• Single-member LLC confusion: Even if the decedent was the only member, the LLC’s bank account is still usually treated as entity property, and the bank may still require proof of who is authorized to sign for the LLC after death.
• Missing operating agreement: No operating agreement does not mean “no rules.” Default statutory rules still apply, but they may not give the personal representative automatic check-writing authority over the LLC account without additional steps.
• Bank compliance requirements: Banks often require specific documentation (certified letters, entity documents, and sometimes a court order) because paying the wrong party can expose the bank to liability.
• Mixing LLC and personal funds: If records show commingling, it can create disputes about whether amounts are truly LLC property, loans, or distributions, and it can slow release of funds.
• Closing the estate too early: If the estate is closed before the LLC interest/value is addressed, extra filings may be needed to correct the administration.

Conclusion

In North Carolina, the absence of an LLC operating agreement does not make the LLC’s bank account “automatically” part of the decedent’s estate. The LLC’s funds generally remain LLC property, while the estate typically succeeds to the decedent’s LLC interest and whatever rights the law provides after death. When a bank refuses to release LLC funds, it often means the bank needs proof of who has authority to act for the LLC or a court order clarifying that authority. The practical next step is to request an order from the Clerk of Superior Court in the estate file that addresses the LLC account and the personal representative’s authority.

Talk to a Probate Attorney

If an LLC bank account is discovered after a death and the bank will not release funds without additional court authorization, a probate attorney can help sort out what belongs to the estate, what belongs to the LLC, and what documentation the Clerk of Superior Court and the bank will accept. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.