Which Controls? The Partnership Agreement or the Will?
In Finlaw v. Finlaw, the court determined that a provision for disposition of a partnership interest overrode the terms of a decedent’s Last Will and Testament.
The decedent, Twila, together with her husband and the Palmers, entered into a partnership agreement (the “Agreement”) for the Palmer-Finlaw Associates (the “Partnership”).
The Agreement provided that “[e]ach partner, who shall ultimately become a surviving spouse…. agrees to have prepared… a last will and testament so as to vest his or her interest in this Partnership in his or her children (lineal descendants). Should any partner … fail to execute such last will and testament, so as to ultimately cause his or her partnership interest to pass to and vest in an individual, who is not a spouse or lineal descendant of these partners, then…. the Partnership shall be liquidated and dissolved..”
Twila executed her Last Will and Testament and named her grandson, Jeffrey, (“Jeffrey”) as personal representative and devised all of her assets to him. After her death, Twila’s estate planning attorney testified that it was her intent that her Partnership interest be distributed to Jeffrey.
Twila’s son, Roger (“Roger”) filed a claim against Twila’s estate for the Partnership interest because Twila’s Last Will and Testament did not comply with the Agreement. The lower court determined that the plain language of the Agreement provided that the disposition had to be to the child, Roger, and “[t]o expand the plain language meaning of ‘children’ to include any other lineal descendants of the Decedent would unnecessarily expand the standard definition of ‘child’ or ‘children’ beyond its plain meaning”. Thus, the court ordered Jeffrey to deliver the Partnership interest to Roger.
On appeal, Jeffrey argued that he should inherit but, even if he did not, then the Partnership should be dissolved pursuant to the Agreement. The appellate court determined that “[u]nder both Ohio and Florida law, where contracting parties expressly agree on the disposition of property upon death, that agreement generally controls over a testamentary disposition of the property”.
Under the Agreement, the Partnership would ONLY be dissolved if the interest passed to an individual who was NOT a spouse or lineal descendant. As Roger was a lineal descendant, there was no dissolution of the Partnership.
ADVICE: When planning for estate disposition be sure that you review the documents for the LLC and partnerships for which individuals are members , partners, or stockholders. If the documents provide contrary to the client’s intent, then it is important to revise the operating agreements prior to preparing the estate plan so that there is coordination between the entity and the estate planning documents.
The Real Property Probate and Trust Law Section of the Florida Bar (“RPPTL’) is currently considering legislation to amend the Uniform Transfer-On-Death Security Registration Act (the “Act”) to clarify the Act’s
application to transfers-on-death of ownership interests in LLCs, LPs, and other closely held business entities.
WORD OF THE WEEK: Lineal descendant, synonymous with descendant and “issue”, is defined under the Florida probate code as a a person in any generational level down the applicable individual’s descending line and includes children, grandchildren, and more remote descendants. Adopted children are considered lineal descendants. Unless adopted, a step-child is not considered a lineal descendant.
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