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 on
Unfortunately our club has done it 4 times this year alone. All our members have a declared beneficiary (usually wife or children) on file. So we send them a check, we would prefer to send stock but Schwab does NOT allow that; so we are looking to change to Fidelity. Since we sell stock (based on their ownership) we deduct from their check the capital gains tax that the rest of the club has to cover.
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
ira smilovitz on
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.
Minh Le on
Hi Dan,
How do you determine the total amount of taxes?
Do you calculate the tax, fed and state, for each member, sum them up, and charge the withdrawing member?
Minh T. Le
On Dec 1, 2023, at 2:21 PM, Dan Cohn via bivio.com <user*32501700001@bivio.com> wrote:
Unfortunately our club has done it 4 times this year alone. All our members have a declared beneficiary (usually wife or children) on file. So we send them a check, we would prefer to send stock but Schwab does NOT allow that; so we are looking to change to Fidelity. Since we sell stock (based on their ownership) we deduct from their check the capital gains tax that the rest of the club has to cover.
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
Very sorry to her that Dan. I am not sure, but I believe we actually don't have a declared beneficiary. We are still with TDA and haven't been scheduled to do so yet. We make a cash payment to the withdrawn member by check. The concern is if he passes before the check is written. Can we write the check to both him and his wife so to avoid the possibility of probate issues. If so, is this an accounting problem or a problem with the partnership where the IRS is concerned. Thanks for your input, much appreciated.
On Friday, December 1, 2023 at 06:22:05 PM CST, Dan Cohn via bivio.com <user*32501700001@bivio.com> wrote:
Unfortunately our club has done it 4 times this year alone. All our members have a declared beneficiary (usually wife or children) on file. So we send them a check, we would prefer to send stock but Schwab does NOT allow that; so we are looking to change to Fidelity. Since we sell stock (based on their ownership) we deduct from their check the capital gains tax that the rest of the club has to cover.
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
John Rice on
Wow, Dan. I would say that you are stealing from the person who is withdrawing except that they have said that it was ok. It is impossible for you to know the capital gains taxes that each member will pay when they do their taxes? What if members have losses for the year? There are three tiers for capital gains depending on their income. I see a big lawsuit if one of your members catches on.
Very sorry to her that Dan. I am not sure, but I believe we actually don't have a declared beneficiary. We are still with TDA and haven't been scheduled to do so yet. We make a cash payment to the withdrawn member by check. The concern is if he passes before the check is written. Can we write the check to both him and his wife so to avoid the possibility of probate issues. If so, is this an accounting problem or a problem with the partnership where the IRS is concerned. Thanks for your input, much appreciated.
Unfortunately our club has done it 4 times this year alone. All our members have a declared beneficiary (usually wife or children) on file. So we send them a check, we would prefer to send stock but Schwab does NOT allow that; so we are looking to change to Fidelity. Since we sell stock (based on their ownership) we deduct from their check the capital gains tax that the rest of the club has to cover.
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
He requested a withdrawal today. The concern is if he passes before the check is written, can we write it to his wife in the event he passes before then. Should we write the check to both her name and his so there would be no issue in cashing it.
On Friday, December 1, 2023 at 07:11:43 PM CST, ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:
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 on
Hi Ira,
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
ira smilovitz on
Unless your partnership agreement calls for it, it really isn't appropriate to assign the capital gains tax to the withdrawal. For one, you don't know what the capital gains tax will be because you don't know the rest of the income picture for the individual. Second, if you sell losers (which is generally recommended), do you give the withdrawing member extra fund for the capital gains tax the club is saving? Third, the club isn't "paying" any more tax due to selling the stock, it is only accelerating the date the tax is paid. The remaining members will be paying more tax this year (on a sale for a gain), in exchange for less tax when they ultimately withdraw from the club.
Finally, it is unfair to the withdrawing member as he will be paying twice - first, he pays the capital gains tax that the club withholds from his withdrawal, and then he will pay the IRS capital gains tax on his share of the gains when they are reported on his K-1 at the end of the year.
Unfortunately our club has done it 4 times this year alone. All our members have a declared beneficiary (usually wife or children) on file. So we send them a check, we would prefer to send stock but Schwab does NOT allow that; so we are looking to change to Fidelity. Since we sell stock (based on their ownership) we deduct from their check the capital gains tax that the rest of the club has to cover.
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
ira smilovitz on
Dan,
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
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.
Jack Ranby
From: club_cafe@bivio.com <club_cafe@bivio.com> On Behalf Of ira smilovitz via bivio.com Sent: Friday, 1 December, 2023 18:56 To: club_cafe@bivio.com Subject: Re: [club_cafe] Death of member
Dan,
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
Linda Glein on
"...we deduct from their check the capital gains tax that the rest of the club has to cover."
Unfortunately our club has done it 4 times this year alone. All our members have a declared beneficiary (usually wife or children) on file. So we send them a check, we would prefer to send stock but Schwab does NOT allow that; so we are looking to change to Fidelity. Since we sell stock (based on their ownership) we deduct from their check the capital gains tax that the rest of the club has to cover.
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
ira smilovitz on
Jack,
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
Dan Cohn on
Thanks Ira and Jack;
think I covered all the wrong ways; so what should be the right way?
Thanks for your information!
Dan Cohn
Sent from my iPhone
On Dec 1, 2023, at 11:38â¯PM, ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:

Jack,
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.
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Dan Cohn 404 862 5640
John Rice on
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.