If your club is using the BI or ICLUB sample partnership agreement, you will find a provision (currently in item 16, Addition of Partners) for handling revocable trusts:
(a) Transfers to a Trust. A partner may, after giving written notice to the other partners, transfer his interest in the partnership to a revocable living trust of which he is the grantor and sole trustee.
When this change happens:
Navigate to the People page of myICLUB, and click the member's name.
Click the Edit Profile button, near the bottom of the page.
Use the Partner Entity drop-down and change it to Trust
Enter the name of the trust
Some trusts will have longer names than others; for tax purposes, the minimum required is the name of the trustor, the word “Trust” and the date of the trust agreement.
Click Save Changes near the bottom of the screen, and the entry will be saved.
Once this is done, the member's name will still appear on all club reports, but when producing forms with our tax printer, the member's name will be replaced with the name of the trust as it is entered on the Profile page.
At the partner’s death (or when any future withdrawal is made), the payment is made payable to the Trust, not the Trustee (who would be someone other than the member upon the trust owner’s death). The Trustee has the responsibility and authority to determine the use of the payment.
This is the only commonly used method of accommodating heirs in an investment club . We don’t recommend joint ownership or “beneficiaries.” Beneficiaries can be problematic for a number of reasons, including problems that may arise from conflicts in a will or other claimants to a deceased’s property, so clubs should steer clear.
Members who take advantage of a revocable living trust will have to work with their own estate/financial planner in order to get it in place, but historically they are not very complicated or expensive to create.
Here are some common questions, and things we think clubs should be aware of, when considering allowing trusts:
By adding trusts, are we opening up new members to potential liability from previous errors?
Yes, you are. It is our opinion that the potential is very small, though. If you have good accounting procedures, including a check on the treasurer, such as an annual internal audit at the least, the potential liability approaches zero. Not exactly zero but very small. The better your accounting checks and balances, the lower the risk to new members. Club members should weigh the positives of estate planning via trusts as members versus the possibility of liability to new members.
What is the potential harm to new members?
New members could be held liable for accounting errors made by the club when they were not members. The Centralized Partnership Audit Regime (CPAR) allows the IRS to make the partnership, rather than the past partners, pay any additional tax and/or penalties. The tax/penalty would apply to the year the audit occurred rather the year being audited. Audits of small investment partnerships can occur but are rare. As of this writing in 2026, our research shows that the IRS concentrates on partnerships with assets >= $10 million. The rate of audit for these partnerships was 2.7% in 2011 and 0.1% in 2023.
How far back can the IRS request an Audit of a club's records?
For general audits the IRS can go back 3 years from the date a return is filed. This can be extended to 6 years if income was under-reported by 25% or more. Audits for unfiled returns can be done at any time. If an audit is initiated due to concerns of fraud, there is no time limit. For clubs with accurate accounting records and who have been filing their 1065 in a timely manner, the limit would be 3 years. Audits of investment clubs are quite rare. Our accounting advisor Russell Malley notes: In my 30+ years as a BetterInvesting volunteer and 20+ years with ICLUBcentral and its predecessor company, I have only heard of 1 audit. That was a special situation where a club member was suspected of a financial crime.
Is this a "red" flag to the IRS when we no longer "opt out" due to the trusts?
Deciding not to opt-out of CPAR is not a red flag to the IRS. They probably like partnerships not to opt-out as the CPAR gives the IRS more flexibility.
