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socrateaser, Attorney
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Three individuals formed a partnership then formed a trust

Resolved Question:

Three individuals formed a partnership then formed a trust to purchase real and personal property. Now, one of the partners would like out of the partnership and would like his share of the real and personal property.

What options are available?

1 - The remaining two members can personally purchase the partnership from the third partner, leaving each with 50/50

2 - Can the partnership purchase (like treasury stock) the leaving partners interest? If so, how would that work.


Thank you
Submitted: 1 year ago.
Category: Business Law
Expert:  socrateaser replied 1 year ago.
Hello,

1. Does the trustee have title to the real and personal property?

2. Is the trust irrevocable?

3. Are the trust beneficiaries persons other than the partnership?

4. Is the partnership a general (no government registration), LLP, LP, LLC?

5. Is there a written partnership/operating agreement?

Thanks in advance.
Customer: replied 1 year ago.

Sorry, but did you get my reply?

Expert:  socrateaser replied 1 year ago.
No, sorry, but I didn't receive anything other than your post where you ask if I received the reply. Please try again -- thanks!
Customer: replied 1 year ago.

1 - Trust has title to property


2 - Yes. It was established in 1993 and the grantor can revoke the trust


3 - no


4 - General


5 - Yes. The "termination of partnership interest" section indicates that if a partner desires to sell his interest, the trust shall have the option to purchase such partnership interest within six months following notice to the trustee of such circumstance for the amount determined.


 

Expert:  socrateaser replied 1 year ago.
Okay, thanks.

If the trust purchases the dissociating partner's interest, then that partner will have taxable income on any gain. However, because the trust is revocable, the gain would be based upon the property's basis at the date of sale, and not on the date of the gift to the trust, because revocable trust property remains part of the gross estate of the grantor.

So, the dissociating partner's gain would be no more than would be the case were the property sold in an open market transaction -- which if the property were only recently purchased, may actually be a net loss.

The remaining partners would simply contribute additional cash to the trust, and that cash would be used to purchase the dissociating partner's interest.

No tax liability for the existing partners -- probably very little if any tax liability for the dissociating partner.

Hope this helps.
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 34393
Experience: Retired (mostly)
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