Harold writes to ask, "A partner in our investment club has died. Her husband wants to roll her shares into his account. How do we do this?"
I offer my condolences to you and your fellow club members. Losing a friend in an your club is one of the toughest challenges that many clubs face, particularly those of long-standing.
Most investment club operating agreements specify that the death of a member constitutes a "full withdrawal" from the partnership. This makes sense, after all, since a deceased person can't be an active member of the club.
As such, the proper way to handle the death of any member is for the club treasurer to simply process a full withdrawal of that member's capital account, adhering to the timetable laid out in the partnership agreement. Transfer shares to the deceased member's brokerage account, and/or make a check payable to the deceased (or, if you must, make the check payable to "The Estate of...".) and deliver it to the next of kin. Period.
Simple enough, right? Unfortunately, many clubs try to make things complicated when dealing with a partner who has passed away. Rolling over shares into another member's account is one of those potentially problematic situations that are best avoided in an investment club. You have no legal basis for making assumptions about a presumed heir. As such, you should not make a check payable to the spouse nor transfer the deceased member's capital account in the club to the spouse (or any other person).
myICLUB.com does not support transfers of shares, as well, since these situations can create problems. While you could process the withdrawal and redeposit the funds as a member payment for the spouse without writing a check, I would not advise this. Make out a check or transfer securities as with any other withdrawal. If the spouse wishes, he or she can turn around and make a deposit into the club of the same amount after receiving the deceased member's check. This clears the club of any potential direct legal problems with probate issues -- it would be a nightmare for the club to have to try to recover funds that were paid out to the wrong party, particularly if there were any disputes with regards to the will.
Many investment clubs require members to complete beneficiary statements which are kept on file. These are usually unenforceable under the laws of many states, and as such could put the club into jeopardy if the decedent's will directs the assets of the member to someone other than the individual(s) specified in the "beneficiary statement."
Note that while the estate of a deceased member can be valued on the date of death (or in some cases six months later), this has no effect on the value of the member withdrawal or the timing of the payout--it's a matter for the estate to decide. Follow your partnership agreement and your club can avoid problems when dealing with a deceased member.
- DOUG GERLACH
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