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Here, Thrings partner Mike Westbrook advises on how the provisions of a partnership agreement and a partner’s will interact.
Q A farming partnership deed, signed by both partners and witnessed by a third party states: “Neither party shall, without the consent in writing of the other partner, assign, mortgage, or charge his share or interest in the partnership.”
The question is: Can the will of one partner override or overrule a partnership deed, when there was no written consent from the other partner?
The partnership deed was dated in 1964; the deceased partner’s will in late 2003. The partner died in 2014. In his will he left his wife a lifetime interest in the farm, which is the point of the question.
A The interaction of a partnership agreement and arrangements that take effect on death under a will must be considered very carefully. When a partner dies, various issues arise, including:
- Does the partnership continue? If a general partnership only has two partners (whether or not there is a written partnership agreement), the partnership will come to an end on the death of one of them.
- What specific provisions in the agreement come into effect on the death of a partner? It is typical to find an option allowing surviving partners to buy the share of a deceased partner, or more rarely, a trigger for an automatic transfer of a partner’s share to the remaining partners.
- Was the farm a partnership asset? For example, did the partnership agreement state the farm was a partnership asset and did the farm accounts reflect this?
- What is the exact wording of the will?
See also: When a widow is not included in the will
Based on the limited facts in the question, it appears there were only two partners.
On the death of the first partner, the partnership governed by the 1964 agreement most likely ended and the share of the deceased partner would have passed to the deceased’s personal representatives.
Assuming there were no option provisions (or if there were, these were not exercised), the assets/liabilities representing the partnership share would have passed in accordance with the will.
In response to the specific query, the provision in the partnership agreement referred to in the question typically applies while a partnership is ongoing and the partners are alive.
It is designed to prohibit a partner assigning, charging or otherwise disposing of their share to a third party without the other partner’s knowledge, so requiring their agreement.
The act of making the will does not constitute an assignment or charge for the purposes of the partnership agreement because a will, although validly made when properly executed, does not come into effect until a person’s death.
So the making of the will in 2003 would not have required the consent of the other partner.
Further, typically, provisions that prohibit assignment do not usually apply on the death of a partner, and therefore do not usually override the provisions of a will.
To determine exactly what happens on death, the interaction between the partnership agreement and the will must be considered.
If there is an option for surviving partners to acquire a deceased partner’s share, this is usually at market value at the date of death.
There is then a mechanism for payment to the deceased’s personal representatives, so the deceased’s estate receives the cash value of the partnership share.
If an option is not exercised, the deceased’s estate is due the assets representing the deceased’s share in the partnership.
However, the partnership share is not necessarily the same thing as the farm, although, the outcome may be the same.
It would be necessary to understand the partnership set up and the precise wording of the agreement and the will to give a conclusive view.
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