What Do We Do If a Club Member Dies?

Q. We are in the process of joining NAIC and developing our club membership agreement. However, we are stumped on what happens, or what our agreement should require for the death of a member. We are unable to locate much information on this subject. Can you help?

A. If you're following the NAIC's sample partnership agreement, you should see this clause that covers the death of a partner:

19. Death or Incapacity of a Partner. In the event of the death or incapacity of a partner (or the death or incapacity of the grantor and sole trustee of a revocable living trust, if such trust is partner pursuant to Paragraph 16A hereof), receipt of notice shall be treated as a notice of full withdrawal.

That's all there is to it -- you'd proceed as you would with any other full withdrawal of a member. That means determing the value of the withdrawing partner's capital account on the date proscribed by your agreement, and then writing a check or transferring securities in the amount that's determined. In the case of a deceased partner, NAIC recommends that you write a check payable in the name of that partner -- and not to the spouse or other relative. It's best to let the probate courts decide where the deceased partner's club account proceeds should end up.

While there's a tendency for clubs to try to come up with complicated procedures to handle what happens when a member dies, including establishing "beneficiaries," these are usually futile efforts that can backfire in some situations. (See Can our club establish beneficiaries? for more on the subject.)