I'm in the process of closing my mother's estate, which is in a trust. I got to thinking about my own estate, and worry if a payout to my estate will trigger probate. (I am in California so I worry more about taxes, regulations and courts than death.) I see in Bivio's Model Partnership Agreement a paragraph that provides for partners to transfer interest in the club to a revocable trust. I read through a chain on the Message Board that mainly worry about multiple people being involved. I don't see that as a problem if I am (or any other partner is) the trustee (this is stated in the Model PA) and my SSN is the one that is used.
My question is are there other concerns about using a trust in investment clubs?
"The single biggest problem in communication is the illusion that it has taken place." George Bernard Shaw
I am not a lawyer. Link to def'n, pros and cons of probate.https://www.legalzoom.com/articles/pros-and-cons-of-probate
As a club treasurer, every time there is a withdrawal, there is the potential for a glitch, no matter what the bylaws say, what the other partners do, and the sense of urgency by all concerned. With a death withdrawal, there are even more variables.
Besides public speaking and death, people really fear probate. To me, it is a public adjudication of an estate. Many states have streamlined it for small estates (don't know about Cali).
Typically, even with a trust, there is still a "pour over" will which has to be probated, so no matter what, having a trust doesn't automatically allow an estate to always avoid probate.
As a treasurer, I want no part of coordinating with an estate, a trustee, a lawyer, etc.
I requested that each club I am a treasurer for insert a paragraph in the bylaws prohibiting transfer of club shares to a trust. Yes, we all want to be friends, but we are a business and we want to keep things simple and not introduce extra variables to withdrawals.
My$0.02. Irina Clements, Treasurer Streetbeaters
Generally speaking, living trusts (that is, a trust where the grantor and the trustee are the same and the purpose of the trust is to avoid probate) do not cause any problem for investment clubs. However, there was a very recent Tax Court decision, Seaview Trading LLC et at v. Commissioner (CA9-2017) Case No. 14-71330, that may affect this. In the cited case, the US Ninth Circuit Court of Appeals agreed with the IRS that a small partnership (less than 10 members) was still subject to the TEFRA consolidated partnership rules because the two partners in the subject case were LLCs and not natural persons, a C corporation or an estate of a deceased partner.
This is a very technical distinction and probably has no applicability to typical investment clubs, but it could come into play should an investment club find itself under IRS audit.
Ira Smilovitz, EA
On Mon, Jul 10, 2017 at 2:32 PM, Irina Clements via bivio.com <email@example.com> wrote: