His wife is not in the club, however she is the POA and she requested with his knowledge that he be immediately withdrawn from the club. We are going to hold a series of emergency meetings as outlined in our bylaws to expidite the matter to get it done before he passes. My concern was the timing, in the event he passed before the check can be written . His withdrawal date has been established, his evaluation date will be the emergency meeting on Sunday where we will determine which stocks will be required for cash needed and set his evaluation date, then followed by another emergency meeting to issue the check. We have thankfully never faced this scenario or had a member pass while in the club. This is probably a good learning experience for everyone else as well and we deeply appreciate all the advice. Fortunately for us we all know the family well and wish to accommodate them in such a way as to have one less thing to consider. We a very confident that we shouldn't have any issues from the family.
Again, thanks. We are open to suggestions about how to handle this in the future and of course avoid the agony of an audit.
Sent from my iPhone
On Dec 2, 2023, at 12:07 PM, John Rice via bivio.com <user*24380400001@bivio.com> wrote:
You said that the partner was in critical condition. Is the wife in the club? If not, he will have to give you authority to do anything else. It is recommended after the passing of the partner that you withdraw him and write a check to "The Estate of ___________".
My comment about PoAs was intended to apply to the "last minute" planning by the family. I should have explicitly stated that these documents lose authority upon death. Thank you for catching the omission and correcting it.
Regarding the reference to use a power of attorney to avoid probate. Powers of Attorney, durable or otherwise, are NOT substitutes for probate. The validity of a power of attorney terminates on the death of the person granting the power. The "Durable" designation applies only when the grantor is still alive, but has lost mental or physical capacity to act in their own stead.
Regarding the comment that a lawyer and CPA approved the use of a beneficiary designation. If there are explicit provisions in the law of your state that approves the practice, then their advice is on firm ground. If not, I assume their advice is merely a risk assessment that using the procedure presents a low risk of litigation due to the relatively small amount of money involved and the congeniality of the partnership friendships. You may get away with this practice several times, but it only takes one person who thinks the amount of money in question is not a relatively small amount to them and it won't be a person with a friendship relationship with partnership members.
The decedent will have other assets that will need to dealt with via formal or informal probate. The check from the partnership making the distribution will be just be one of several assets to be dealt with. Why create potential problems for the partnership without any meaningful reduction in the post death administration of the decedent's assets.
Speeding up the distribution sounds like it would violate the multi-month process included in most BI partnership agreements, which provides the valuation of the departing member's units does not occur until the second meeting after receiving the request to leave the partnership.
Finally, the unsupportability of the idea of imposing the tax liability of multiple partners on the departing partner has been addressed by others. Let me add only that it would be count two in my law suit.
Have them look at the Uniform Probate Code - specifically the Comment beginning on page 404:
This Code follows the Model Probate Code (1946) in regard to partnership interests. In the introduction to the Model Probate Code, the following appears at p. 22:
"No provisions for the administration of partnership estates when a partner dies have been included. Several states have statutes providing that unless the surviving partner files a bond with the probate court, the personal representative of the deceased partner may administer the partnership estate upon giving an additional bond. Kan. Gen. Stat. (Supp. 1943) §§ 59-1001 to 59-1005; Mo. Rev. Stat. Ann. (1942) §§ 81 to 93 [V.A.M.S. §§ 473.220 to 473.230]. In these states the administration of partnership estates upon the death of a partner is brought more or less completely under the jurisdiction of the probate court. While the provisions afford security to parties in interest, they have caused complications in the settlement of partnership estates and have produced much litigation. Woerner, Administration (3rd ed., 1923) §§ 128 to 130; annotation, 121 A.L.R. 860. These statutes have been held to be inconsistent with Section 37 of the Uniform Partnership Act providing for winding up by the surviving partner. Davis v. Hutchinson (C.C.A. 9th, 1929) 36 F.(2d) 309. Hence the Model Probate Code contains no provision regarding partnership property except for inclusion in the inventory of the decedent's proportionate share of any partnership. See Model Probate Code (1946) Section 120. However, it is suggested that the Uniform Partnership Act should be included in the statutes of the states which have not already enacted it." https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=175deaae-c229-5c25-606c-edd60c0ca239
I'm not a CPA, I'm an EA (Enrolled Agent). Enrolled Agents are "admitted to practice before the Internal Revenue Service" on the basis of demonstrating "special competency in tax matters by written examination administered by the IRS". We are the nation's tax experts. (Many CPAs and lawyers practice in areas far removed from taxation.)
Our CPA and lawyer members have been okay with it; as long as we have a signed beneficiary form from the deceased. I am just a lowly Food Scientist. Always respect your insight; assume you are a CPA.
This is a dangerous move. In the absence of a formal withdrawal request, disbursing the member's value to anyone opens the club up to a potential lawsuit from anyone who might stand to inherit. You don't know what plans an individual has made for his/her estate and disbursing to the wrong party is inviting trouble. The club should not be taking steps to avoid probate for a member - that is an action the member (or family) should undertake with the appropriate legal documentation ([Durable or Ordinary Power of Attorney).
This is also why beneficiary declarations for investment clubs are also problematic. Partnership interests are generally not subject to Transfer of Death designations. Only bond, stock, and brokerage accounts are covered by the Uniform Transfer on Death Security Registration Act which regulates TOD designations. Bank accounts and CDs are covered by the POD designations which are covered by the Uniform Multiple-Persons Account Act. Neither Act covers partnership interests. If a club uses a beneficiary designation to pay out a deceased member's value, the decedent's Will will supersede the club beneficiary designation. This could open the club up to a lawsuit from the executor of the estate or any beneficiary who was deprived of assets that were legally theirs. The club will incur the expense and possible legal action of recovering the misdirected payment or wil have to otherwise make good to the Estate.
We have a member who is in critical condition, and we would like to get payment to his spouse in the event he passes before our next scheduled meeting. The idea is to avoid probate in the event he does pass. Can we write the check to his wife? If not, can we write the check to the both of them? We want to make this a painless as possible and would appreciate a response ASAP.
--
Dan Cohn 404 862 5640
Margaret Wentworth on
Alarm bells are ringing. Your club must have rules regarding withdrawals. You should follow these rather than trying to work out a special exception for his family.
His wife is not in the club, however she is the POA and she requested with his knowledge that he be immediately withdrawn from the club. We are going to hold a series of emergency meetings as outlined in our bylaws to expidite the matter to get it done before he passes. My concern was the timing, in the event he passed before the check can be written . His withdrawal date has been established, his evaluation date will be the emergency meeting on Sunday where we will determine which stocks will be required for cash needed and set his evaluation date, then followed by another emergency meeting to issue the check. We have thankfully never faced this scenario or had a member pass while in the club. This is probably a good learning experience for everyone else as well and we deeply appreciate all the advice. Fortunately for us we all know the family well and wish to accommodate them in such a way as to have one less thing to consider. We a very confident that we shouldn't have any issues from the family.
Again, thanks. We are open to suggestions about how to handle this in the future and of course avoid the agony of an audit.
You said that the partner was in critical condition. Is the wife in the club? If not, he will have to give you authority to do anything else. It is recommended after the passing of the partner that you withdraw him and write a check to "The Estate of ___________".
My comment about PoAs was intended to apply to the "last minute" planning by the family. I should have explicitly stated that these documents lose authority upon death. Thank you for catching the omission and correcting it.
Regarding the reference to use a power of attorney to avoid probate. Powers of Attorney, durable or otherwise, are NOT substitutes for probate. The validity of a power of attorney terminates on the death of the person granting the power. The "Durable" designation applies only when the grantor is still alive, but has lost mental or physical capacity to act in their own stead.
Regarding the comment that a lawyer and CPA approved the use of a beneficiary designation. If there are explicit provisions in the law of your state that approves the practice, then their advice is on firm ground. If not, I assume their advice is merely a risk assessment that using the procedure presents a low risk of litigation due to the relatively small amount of money involved and the congeniality of the partnership friendships. You may get away with this practice several times, but it only takes one person who thinks the amount of money in question is not a relatively small amount to them and it won't be a person with a friendship relationship with partnership members.
The decedent will have other assets that will need to dealt with via formal or informal probate. The check from the partnership making the distribution will be just be one of several assets to be dealt with. Why create potential problems for the partnership without any meaningful reduction in the post death administration of the decedent's assets.
Speeding up the distribution sounds like it would violate the multi-month process included in most BI partnership agreements, which provides the valuation of the departing member's units does not occur until the second meeting after receiving the request to leave the partnership.
Finally, the unsupportability of the idea of imposing the tax liability of multiple partners on the departing partner has been addressed by others. Let me add only that it would be count two in my law suit.
Have them look at the Uniform Probate Code - specifically the Comment beginning on page 404:
This Code follows the Model Probate Code (1946) in regard to partnership interests. In the introduction to the Model Probate Code, the following appears at p. 22:
"No provisions for the administration of partnership estates when a partner dies have been included. Several states have statutes providing that unless the surviving partner files a bond with the probate court, the personal representative of the deceased partner may administer the partnership estate upon giving an additional bond. Kan. Gen. Stat. (Supp. 1943) §§ 59-1001 to 59-1005; Mo. Rev. Stat. Ann. (1942) §§ 81 to 93 [V.A.M.S. §§ 473.220 to 473.230]. In these states the administration of partnership estates upon the death of a partner is brought more or less completely under the jurisdiction of the probate court. While the provisions afford security to parties in interest, they have caused complications in the settlement of partnership estates and have produced much litigation. Woerner, Administration (3rd ed., 1923) §§ 128 to 130; annotation, 121 A.L.R. 860. These statutes have been held to be inconsistent with Section 37 of the Uniform Partnership Act providing for winding up by the surviving partner. Davis v. Hutchinson (C.C.A. 9th, 1929) 36 F.(2d) 309. Hence the Model Probate Code contains no provision regarding partnership property except for inclusion in the inventory of the decedent's proportionate share of any partnership. See Model Probate Code (1946) Section 120. However, it is suggested that the Uniform Partnership Act should be included in the statutes of the states which have not already enacted it." https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=175deaae-c229-5c25-606c-edd60c0ca239
I'm not a CPA, I'm an EA (Enrolled Agent). Enrolled Agents are "admitted to practice before the Internal Revenue Service" on the basis of demonstrating "special competency in tax matters by written examination administered by the IRS". We are the nation's tax experts. (Many CPAs and lawyers practice in areas far removed from taxation.)
Our CPA and lawyer members have been okay with it; as long as we have a signed beneficiary form from the deceased. I am just a lowly Food Scientist. Always respect your insight; assume you are a CPA.
This is a dangerous move. In the absence of a formal withdrawal request, disbursing the member's value to anyone opens the club up to a potential lawsuit from anyone who might stand to inherit. You don't know what plans an individual has made for his/her estate and disbursing to the wrong party is inviting trouble. The club should not be taking steps to avoid probate for a member - that is an action the member (or family) should undertake with the appropriate legal documentation ([Durable or Ordinary Power of Attorney).
This is also why beneficiary declarations for investment clubs are also problematic. Partnership interests are generally not subject to Transfer of Death designations. Only bond, stock, and brokerage accounts are covered by the Uniform Transfer on Death Security Registration Act which regulates TOD designations. Bank accounts and CDs are covered by the POD designations which are covered by the Uniform Multiple-Persons Account Act. Neither Act covers partnership interests. If a club uses a beneficiary designation to pay out a deceased member's value, the decedent's Will will supersede the club beneficiary designation. This could open the club up to a lawsuit from the executor of the estate or any beneficiary who was deprived of assets that were legally theirs. The club will incur the expense and possible legal action of recovering the misdirected payment or wil have to otherwise make good to the Estate.
We have a member who is in critical condition, and we would like to get payment to his spouse in the event he passes before our next scheduled meeting. The idea is to avoid probate in the event he does pass. Can we write the check to his wife? If not, can we write the check to the both of them? We want to make this a painless as possible and would appreciate a response ASAP.
--
Dan Cohn 404 862 5640
Steve Todd on
This falls within our bylaws. Emergency meetings count as a meeting.
Sent from my iPhone
On Dec 4, 2023, at 6:33 AM, Margaret Wentworth via bivio.com <user*25964300001@bivio.com> wrote:
Alarm bells are ringing. Your club must have rules regarding withdrawals. You should follow these rather than trying to work out a special exception for his family.
His wife is not in the club, however she is the POA and she requested with his knowledge that he be immediately withdrawn from the club. We are going to hold a series of emergency meetings as outlined in our bylaws to expidite the matter to get it done before he passes. My concern was the timing, in the event he passed before the check can be written . His withdrawal date has been established, his evaluation date will be the emergency meeting on Sunday where we will determine which stocks will be required for cash needed and set his evaluation date, then followed by another emergency meeting to issue the check. We have thankfully never faced this scenario or had a member pass while in the club. This is probably a good learning experience for everyone else as well and we deeply appreciate all the advice. Fortunately for us we all know the family well and wish to accommodate them in such a way as to have one less thing to consider. We a very confident that we shouldn't have any issues from the family.
Again, thanks. We are open to suggestions about how to handle this in the future and of course avoid the agony of an audit.
You said that the partner was in critical condition. Is the wife in the club? If not, he will have to give you authority to do anything else. It is recommended after the passing of the partner that you withdraw him and write a check to "The Estate of ___________".
My comment about PoAs was intended to apply to the "last minute" planning by the family. I should have explicitly stated that these documents lose authority upon death. Thank you for catching the omission and correcting it.
Regarding the reference to use a power of attorney to avoid probate. Powers of Attorney, durable or otherwise, are NOT substitutes for probate. The validity of a power of attorney terminates on the death of the person granting the power. The "Durable" designation applies only when the grantor is still alive, but has lost mental or physical capacity to act in their own stead.
Regarding the comment that a lawyer and CPA approved the use of a beneficiary designation. If there are explicit provisions in the law of your state that approves the practice, then their advice is on firm ground. If not, I assume their advice is merely a risk assessment that using the procedure presents a low risk of litigation due to the relatively small amount of money involved and the congeniality of the partnership friendships. You may get away with this practice several times, but it only takes one person who thinks the amount of money in question is not a relatively small amount to them and it won't be a person with a friendship relationship with partnership members.
The decedent will have other assets that will need to dealt with via formal or informal probate. The check from the partnership making the distribution will be just be one of several assets to be dealt with. Why create potential problems for the partnership without any meaningful reduction in the post death administration of the decedent's assets.
Speeding up the distribution sounds like it would violate the multi-month process included in most BI partnership agreements, which provides the valuation of the departing member's units does not occur until the second meeting after receiving the request to leave the partnership.
Finally, the unsupportability of the idea of imposing the tax liability of multiple partners on the departing partner has been addressed by others. Let me add only that it would be count two in my law suit.
Have them look at the Uniform Probate Code - specifically the Comment beginning on page 404:
This Code follows the Model Probate Code (1946) in regard to partnership interests. In the introduction to the Model Probate Code, the following appears at p. 22:
"No provisions for the administration of partnership estates when a partner dies have been included. Several states have statutes providing that unless the surviving partner files a bond with the probate court, the personal representative of the deceased partner may administer the partnership estate upon giving an additional bond. Kan. Gen. Stat. (Supp. 1943) §§ 59-1001 to 59-1005; Mo. Rev. Stat. Ann. (1942) §§ 81 to 93 [V.A.M.S. §§ 473.220 to 473.230]. In these states the administration of partnership estates upon the death of a partner is brought more or less completely under the jurisdiction of the probate court. While the provisions afford security to parties in interest, they have caused complications in the settlement of partnership estates and have produced much litigation. Woerner, Administration (3rd ed., 1923) §§ 128 to 130; annotation, 121 A.L.R. 860. These statutes have been held to be inconsistent with Section 37 of the Uniform Partnership Act providing for winding up by the surviving partner. Davis v. Hutchinson (C.C.A. 9th, 1929) 36 F.(2d) 309. Hence the Model Probate Code contains no provision regarding partnership property except for inclusion in the inventory of the decedent's proportionate share of any partnership. See Model Probate Code (1946) Section 120. However, it is suggested that the Uniform Partnership Act should be included in the statutes of the states which have not already enacted it." https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=175deaae-c229-5c25-606c-edd60c0ca239
I'm not a CPA, I'm an EA (Enrolled Agent). Enrolled Agents are "admitted to practice before the Internal Revenue Service" on the basis of demonstrating "special competency in tax matters by written examination administered by the IRS". We are the nation's tax experts. (Many CPAs and lawyers practice in areas far removed from taxation.)
Our CPA and lawyer members have been okay with it; as long as we have a signed beneficiary form from the deceased. I am just a lowly Food Scientist. Always respect your insight; assume you are a CPA.
This is a dangerous move. In the absence of a formal withdrawal request, disbursing the member's value to anyone opens the club up to a potential lawsuit from anyone who might stand to inherit. You don't know what plans an individual has made for his/her estate and disbursing to the wrong party is inviting trouble. The club should not be taking steps to avoid probate for a member - that is an action the member (or family) should undertake with the appropriate legal documentation ([Durable or Ordinary Power of Attorney).
This is also why beneficiary declarations for investment clubs are also problematic. Partnership interests are generally not subject to Transfer of Death designations. Only bond, stock, and brokerage accounts are covered by the Uniform Transfer on Death Security Registration Act which regulates TOD designations. Bank accounts and CDs are covered by the POD designations which are covered by the Uniform Multiple-Persons Account Act. Neither Act covers partnership interests. If a club uses a beneficiary designation to pay out a deceased member's value, the decedent's Will will supersede the club beneficiary designation. This could open the club up to a lawsuit from the executor of the estate or any beneficiary who was deprived of assets that were legally theirs. The club will incur the expense and possible legal action of recovering the misdirected payment or wil have to otherwise make good to the Estate.
We have a member who is in critical condition, and we would like to get payment to his spouse in the event he passes before our next scheduled meeting. The idea is to avoid probate in the event he does pass. Can we write the check to his wife? If not, can we write the check to the both of them? We want to make this a painless as possible and would appreciate a response ASAP.
--
Dan Cohn 404 862 5640
Jack Ranby on
Hi Dan:
My answer to your question "what should be the right way?"
First, each partner has a personal responsibility to make arrangements for the final disposition of his/her assets post death. Whether that be by Last Will and Testament (leading to a probate) or setting up a revocable trust. How involved a probate will be depends on state law and size of the estate. Many states have informal probate procedures for small estates; and in some cases, even a simple affidavit can be used. The decedent's interest in the Investment Club partnership will not be the only assets that will have to be dealt with post death. There is no need for special treatment for the Investment Club partnership interest. Failure of a partner to plan, or to create a trust and still want to avoid probate, should not become the problem of the Investment Club partnership.
Second, The Investment Cub partnership should have clear provisions in its partnership agreement regarding the process to terminate a partner's interest in the partnership when a death occurs.
Third, the Investment Club should follow the procedures set forth in the partnership agreement, regardless of personal friendships or feelings. An Investment Club partnership is a legal business and should be conducted as such.
Cheers,
Jack
From: club_cafe@bivio.com <club_cafe@bivio.com> On Behalf Of Dan Cohn via bivio.com Sent: Saturday, 2 December, 2023 05:06 To: club_cafe@bivio.com; David Hendelberg <DAH@joneskolb.com> Subject: Re: [club_cafe] Death of member
Thanks Ira and Jack;
think I covered all the wrong ways; so what should be the right way?