1. Death or Incapacity of a Partner. In the event of the death or incapacity of a partner, their capital account will be divided equally among the other partners.

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I guess I could withdraw him from membership and cash him out then she can give the money back to be invested.  It just creates taxes for her and the club.

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Well, no. It won't create taxes for the rest of the club. It is a benefit to the remaining members, because they will receive the units at the current unit value, and that will be the basis of those units. As for the deceased, it doesn't create any taxes, since the estate receives a stepped up basis for the units, which would be the value as of the date of death.

 

I really hesitate to give advice without knowing how much money is involved and without knowing the exact wording of your agreement, but, if you are determined to go ahead with this, you could enter the transactions without any money changing hands. Use  the suspense account to withdraw the units. Then use the suspense account to enter deposits from each of the remaining members. Be sure to use the same date for all the transactions.

 

Rip West
Saint Paul, MN

Ok. I'm not an attorney, and you would do well to consult one. My 'unlegal' opinion is that your partnership agreement constitutes a buy-sell agreement between the partners, where the deceased partner has agreed to sell his interest for zero dollars to the other partners.

 

It would be relatively easy to construct the transaction, if the members were to receive the units in proportion to their ownership.

Doing it equally presents more of a problem. Here is one way to accomplish what you want to do. I am going to assume a date of 6/10/06 for the withdrawal. There will be subsequent transactions which should be entered 1 or 2 days later. Substitute your own dates.

 

On 6/10/06, enter a withdrawal for the deceased's account. Enter a dollar amount withdrawal fee equal to his value in the club at that date. This will result in a zero cash withdrawal for that member. As of 6/10/06 each remaining member's value will have increased proportionately to the ownership percentages of those remaining members. This, however, is not what we want, since we want each member's value to increase equally. To accomplish this, we must make 2 additional entries. First, run a member's status report as of 6/11/06 to get the ownership percentages of each remaining member. Then multiply each member's ownership percentage by the total value of the deceased's account before the withdrawal. This is the amount for each member that you must enter as a negative fee on 6/11/06. Be sure to enter it as a negative [minus] fee. Then divide the amount of the deceased's value before withdrawal by the number of remaining members. This is the amount for a payment to be entered for each member on 6/12/06. Be sure to use the same bank account that was used for the entry of the fee transaction. You can use the suspense account for both, if you wish. Now run a member status report as of 6/12/06. If you compare this to a status report run just before the withdrawal, you should see that each member's value has increase by an amount equal to the deceased's value divided by the number of members remaining. It is important for any comparisons that you might make that you don't have any other transactions between the withdrawal date and the payment date 2 days later.

 

Let me know if you have any questions. And remember: this is not a legal opinion, it is just the thinking of an opinionated accountant.

 

Rip West
Saint Paul, MN