When someone owns an LLC that owns assets, can the person give the LLC-owned assets away via their will or estate plan? While many know that they can give away their LLC interest by will, some may not know that they cannot give away LLC assets.
This confusion often comes up as it isn’t aways clear what has been legally recorded in the name of the LLC to qualify as an LLC asset. It may also result from the LLC owner treating the LLC assets as their own throughout their life. The income tax treatment can also be confusing. An LLC may be disregarded for federal income tax purposes. These are just a few of the factors that can lead to confusion for the LLC owner as to who actually owns the assets held in the LLC.
So how strict is this rule and how strictly is it applied? The court in McMurphy v. Moran, No. 14-23-00543-CV, 2025 WL 3891234, provides an opportunity to examine what happens this issue. It is a case involving a will that attempts to transfer business assets, which consisted of an interest in another LLC, that was owned by the top-level LLC owned by the testator.
Facts & Procedural History
Tom married Jane in 1997. He had three adult children from his first marriage: Megan, Erin, and Trey. The couple accumulated substantial assets, including a beach house in Bolivar, a residence in Oklahoma, and interests in various business entities.
Their business holdings included two Oklahoma limited liability companies: Moran Enterprises (“Moran”) and Hefner/Wilshire. Tom and Jane each owned fifty percent of Moran. Moran owned ninety-eight percent of Hefner/Wilshire. Tom and Jane each also owned one percent of Hefner/Wilshire directly.
Tom executed a holographic will before his death. One provision stated: “Jane can buy out my children from Hefner/Wilshire for $500,000 & use our joint accounts for that purpose.” Another said his children would receive “100% of my 50% of anything owned in conjunction with Jane.”
The will was admitted to probate with Jane and Megan as co-administrators. Jane filed a declaratory judgment action arguing the buyout clause let her purchase fifty percent of Hefner/Wilshire, half of Moran’s ninety-eight percent interest, plus Tom’s one percent direct interest.
Megan countered that Tom could only convey his one percent direct interest in Hefner/Wilshire. Moran’s interest belonged to Moran as a separate legal entity, not to Tom personally. The probate court granted Jane’s motion for summary judgment. The children appealed.
LLC Members Own Interests, Not Company Assets
The Texas Business Organizations Code says that a member of a limited liability company or an assignee of a membership interest in a limited liability company does not have an interest in any specific property of the company.
When someone owns a membership interest in an LLC, they own that interest. They do not own the LLC’s assets. The LLC holds title to its own property as a separate legal entity. Oklahoma law has an identical provision that would have governed the Moran and Hefner/Wilshire entries in this case.
So in this case, the testator owned Moran and it was Moran, as an LLC, that owned the interest in Hefner that is in dispute here. The asset held by the LLC was an interest in another LLC.
Can a Testator Give Away LLC Assets
This gets to the question as to whether the LLC member, as owner of the LLC, can use their estate plan to give away the assets held by the LLC. That was the question in this case.
In this case, Tom owned a fifty percent interest in Moran and a one percent direct interest in Hefner/Wilshire. These were the assets available for transfer through his will. Moran owned a ninety-eight percent interest in Hefner/Wilshire. That interest belonged to Moran as a separate legal entity, not to Tom.
The children argued that Tom’s ownership of half of Moran did not give him direct ownership of Moran’s assets. Therefore, he could not use his will to transfer Moran’s interest in Hefner/Wilshire or give Jane the option to purchase that interest.
This is consistent with Texas law. Texas courts have long recognized that a testator can not devise more than that which he possessed. A testator can bequeath what they own, but cannot bequeath what they do not own. Thus, applying the concepts noted above, when a testator owns a membership interest in an LLC, they can leave that interest to their heirs. They cannot directly transfer the LLC’s underlying assets because those assets belong to the LLC, not to the testator.
Jane’s position required collapsing the distinction between Tom’s membership interest in Moran and Moran’s ownership of assets. She argued the buyout clause should give her the right to purchase the “fifty percent interest in Hefner/Wilshire controlled by Tom,” half of Moran’s ninety-eight percent interest, plus Tom’s one percent direct interest.
The probate court sided with Jane and accepted her interpretation and concluded the buyout clause allowed her to purchase all membership interests in Hefner/Wilshire from the children.
The Court Rejected Attempts to Rewrite the Will
On appeal, the appellate court reversed the probate court. The appellate court emphasized that testators cannot devise more than they possess. Tom owned a one percent direct interest in Hefner/Wilshire. That was all he could transfer.
He could not convey any portion of Moran’s interest in Hefner/Wilshire because that interest was legally distinct from his own. The appellate court rejected the idea that the will negated the buyout clause. Jane could still exercise the option by purchasing the one percent direct interest that Tom actually left to his children for $500,000.
The court examined other statements in Tom’s will. He wrote: “Jane and I have already shared 50/50 on most everything else, so I would like my 50% to go to my children.” His repeated references to “my 50%” and “my ownership” suggested he understood the distinction between what he owned personally and what the business entities owned.
The appellate court refused to rewrite the buyout clause “under the guise of construction.” When a will’s language is unambiguous, Texas courts must construe it based on its express terms.
The Operating Agreement Did Not Void the Buyout Clause
The children also argued that Hefner/Wilshire’s operating agreement prohibited transfers and rendered the buyout clause void. Article X stated that transfers not made in accordance with its terms would be “null and void.” It required member consent, execution of substitute member documents, and an opinion of counsel regarding tax classification.
Jane countered that the operating agreement’s definition of “transfer” expressly included “transfer by will or intestate succession.” She argued the members had consented through their actions. The Court of Appeals sided with Jane on this point. The fact that conditions had not yet been satisfied did not void the clause as a matter of law.
The Takeaway
A testator’s power to dispose of property through a will extends only to what they actually own. When a testator owns a membership interest in an LLC, they own that interest, not the LLC’s underlying assets. The LLC exists as a separate legal entity with its own property rights. A will cannot reach through the corporate veil to transfer assets belonging to the entity itself. As in this case, this same concept applies when the LLC owns a subsidiary LLC. The subsidiary LLC does not pass according to the testator’s will per se. Instead, the will transfers the parent LLC and, along with it, the subsidiary LLC.
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