Beneficiaries in Investment Clubs
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Beneficiaries in Investment Clubs A reader asks.............
Would you have
any information with regard to how beneficiaries of investment club members are
treated, i.e. how they are addressed in the
Bylaws?
The treatment of beneficiaries in
an investment club has gone through many gyrations. When the NCA software first
came out, there was a spot to designate a beneficiary. Then, it was pointed out
by lawyers that this was probably not a good idea, since an interest in a
partnership is personal property, not an insurance policy that pays a death
benefit to a designated beneficiary. It was further pointed out that a club
could get into serious trouble, if it were to pay a designated beneficiary, when
the will called for some other disposal.
So, I thought the question had been solved, once and for
all. Just don't do it - i.e. designate a beneficiary in an investment club. Then
some states adopted what is called Pay-on-death or Transfer-on-death
statutes which would seem to allow paying an investment club
interest directly to a designated beneficiary. This would allow the payment to
avoid probate, which is probably not a significant problem anyway. It is
unclear just what happens if the member lives in one of those states and the
partnership was formed in a state that did not have such a statute. It is also
unclear what happens if the reverse were true.
I am still firmly of the belief that investment clubs
should not get involved in this issue. Let the partners perform their own estate
planning to avoid probate, if that is their wish, and let the investment club
pay the interest off to the estate of the deceased member.
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