A partner recently died. What is the best way to transfer
the deceased's shares to her spouse, hopefully without
curent tax implications?

Thomas DeRiemer wrote:
> A partner recently died. What is the best way to transfer
> the deceased's shares to her spouse, hopefully without
> curent tax implications?

Answering the second part of your question is far easier
than the first. There will be no current tax implications
with respect to the transfer.

However, there probably is no simple way to effect the
transfer. First, the decedent's partnership interest
properly passed to the decedent's estate upon her death. The
decedent's husband cannot make additional contributions to
the club while the estate "owns" the partnership interest.
The terms of the decedent's will determine how, and to whom,
to transfer the partnership interest.

Second problem - valuation. When the estate takes
"possession" of the partnership interest, it generally
assumes a valuation as of the date of death of the decedent.
Depending on the by-laws of the partnership, the executor of
the estate could argue for a different (lower) valuation
(for instance, if the club's by-laws impose a significant
charge on liquidation, a delay on receipt of cash, or other
restrictions).

In any event, the tax basis of the successor partner (the
husband if all goes according to plan) will be different
from that of the decedent. I don't know how, if at all, the
club deals with this within its accounting package.

The club will also have an "interesting" time preparing its
year end accounting as it will have to prepare some special
K-1s: From January 1 to the date of death for the decedent
(under her SSN), for the part year that the estate was the
partner (date of death to earlier of distribution date or
12/31 - under the estate's EIN), and, if necessary, from the
distribution date to 12/31 for the successor partner
(husband?).

I hope that someone more knowledgeable than me also chimes
in with advice. While the executor of the estate should seek
competent professional advice, I would recommend that the
club may want to hire its own tax advisor to ensure that
everything is handled correctly.

Ira Smilovitz

When one of our members passed away, we treated it as a full
withdrawl according to our bylaws. The money was given to
the estate of the deceased partner. His wife (also a
partner) remained a member.
Jay Gano

Ira Smilovitz wrote:
> Thomas DeRiemer wrote:
> > A partner recently died. What is the best way to transfer
> > the deceased's shares to her spouse, hopefully without
> > curent tax implications?
>
> Answering the second part of your question is far easier
> than the first. There will be no current tax implications
> with respect to the transfer.
>
> However, there probably is no simple way to effect the
> transfer. First, the decedent's partnership interest
> properly passed to the decedent's estate upon her death. The
> decedent's husband cannot make additional contributions to
> the club while the estate "owns" the partnership interest.
> The terms of the decedent's will determine how, and to whom,
> to transfer the partnership interest.
>
> Second problem - valuation. When the estate takes
> "possession" of the partnership interest, it generally
> assumes a valuation as of the date of death of the decedent.
> Depending on the by-laws of the partnership, the executor of
> the estate could argue for a different (lower) valuation
> (for instance, if the club's by-laws impose a significant
> charge on liquidation, a delay on receipt of cash, or other
> restrictions).
>
> In any event, the tax basis of the successor partner (the
> husband if all goes according to plan) will be different
> from that of the decedent. I don't know how, if at all, the
> club deals with this within its accounting package.
>
> The club will also have an "interesting" time preparing its
> year end accounting as it will have to prepare some special
> K-1s: From January 1 to the date of death for the decedent
> (under her SSN), for the part year that the estate was the
> partner (date of death to earlier of distribution date or
> 12/31 - under the estate's EIN), and, if necessary, from the
> distribution date to 12/31 for the successor partner
> (husband?).
>
> I hope that someone more knowledgeable than me also chimes
> in with advice. While the executor of the estate should seek
> competent professional advice, I would recommend that the
> club may want to hire its own tax advisor to ensure that
> everything is handled correctly.
>
> Ira Smilovitz

Rip West wrote:

<snip>

> The next step will be to get the units transferred from
> the estate to the spouse. If the probate court is involved, it will be necessary
> to get permission to do this. You will have to work with the attorney handling
> the estate to get this done. The faster this can be done, the better, because,
> as Ira said, the estate will have to report dividends and expenses for the
> period that it holds the units. When the time comes to make the transfer from
> the estate to the spouse, you can use the same technique as before. Make a
> complete withdrawal for the estate using the market value at the time of the
> transfer, and have the spouse 'buy' the units at that value. Again, no income
> taxes will be involved.

Rip,

I'm not sure I agree with your proposed procedure for
transfering the partnership units from the estate to the
surviving spouse. The surviving spouse's tax basis in the
transfered partnership units should be the same as the
estate's basis, as of the date of death, plus/minus any
adjustments to basis which occurred during the estate's
ownership.

Something more along the lines of replacing the estate's
name and EIN with the new name and SSN of the surviving
spouse seems more appropriate, but this would bring all the
estate period income into the surviving spouse's K-1 as
well.

As I said, I didn't think it was easy.

Ira Smilovitz