Seeking Guidance on Partnership and Estate Issue

Seeking Guidance on Partnership and Estate Issue Involving Personal Property Abroad

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Hello everyone,

I'm seeking advice on a complex situation involving a business partnership of three individuals, where one of the partners recently passed away. The deceased partner owned personal property abroad and had previously taken drawings from the business to pay for the property's mortgage. At the time, this partner had a sufficient capital balance account to cover these drawings.

The remaining partners are now attempting to claim a debt to the business from the deceased's estate by incorporating the property into the business's accounts. They propose to reallocate the mortgage drawings to be split three ways among all partners, rather than solely to the deceased partner's account.

This property has been bequeathed to family members who are not involved in the business, yet the surviving partners seem to view it as a business asset, or at least believe they have some entitlement to it. This approach appears questionable, as the property was clearly personal and the arrangement for its mortgage payments was made individually by the deceased partner.

I am not the accountant tasked with amending these accounts but I am a bookkeeper and a friend of one of the family members who has been left this property. My question is: Does this attempt by the remaining partners to redistribute the property-related drawings and incorporate the property into the business's assets constitute an overreach or potentially even theft? What are the ethical and legal implications in such a scenario?

 

Replies (9)

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By lesley.barnes
18th Apr 2024 12:03

The family need to speak to their lawyers its not an accountancy question. The accountancy would follow the legal advice. I'm assuming that this is an add on to the previous question you asked back in October. The partnership was in Scotland if I remember correctly.

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By Bobbo
18th Apr 2024 12:24

Obviously a legal matter but just thinking of the debits and credits, if the property was in fact always a part of the partnership then:

Dr Property fixed asset purchase cost
Dr Interest payable (all interest historically paid on the mortgage)
Dr Property maintenance (all maintenance and otherwise costs historically related to this property)
Cr Current mortgage balance on property
Cr Drawings (all amounts historically paid personally related to that property)

Surely this would adjust the partnership accounts in favour of the deceased partner (except to the extent of any unrealised gain on the property)???

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Replying to Bobbo:
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By noobjock
18th Apr 2024 12:58

Bobbo wrote:

Obviously a legal matter but just thinking of the debits and credits, if the property was in fact always a part of the partnership then:

Dr Property fixed asset purchase cost
Dr Interest payable (all interest historically paid on the mortgage)
Dr Property maintenance (all maintenance and otherwise costs historically related to this property)
Cr Current mortgage balance on property
Cr Drawings (all amounts historically paid personally related to that property)

Surely this would adjust the partnership accounts in favour of the deceased partner (except to the extent of any unrealised gain on the property)???

The property was never on the business accounts, only recently put on by the surviving partners in 2019 when the mortgage was paid. The deceased partner bought the property in 2004 and made their last payment in March 2018.

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Replying to noobjock:
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By Bobbo
18th Apr 2024 13:47

NoobJock wrote:

The property was never on the business accounts, only recently put on by the surviving partners in 2019 when the mortgage was paid. The deceased partner bought the property in 2004 and made their last payment in March 2018.

Your initial post suggested that the remaining partners were attempting to incorporate the property into the business accounts now in 2024 (or perhaps accounts for 2023). Now you seem to be saying the property has been in the business accounts since 2019?

I would not consider 2019 in this context as being "recently".

What was the double entry for the property being "put on" the business accounts?

If its been in the business accounts since 2019, presumably the now deceased partner approved several years of accounts containing the property?

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Replying to Bobbo:
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By noobjock
18th Apr 2024 14:23

Hi

Not entirely no, the deceased was mentally incapacitated so had no capacity to approve any accounts, these changes where at the sole instruction of the working partners to the firms accountant.

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Replying to noobjock:
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By noobjock
18th Apr 2024 14:25

NoobJock wrote:

Hi

Not entirely no, the deceased was mentally incapacitated so had no capacity to approve any accounts, these changes where at the sole instruction of the working partners to the firms accountant.

I forgot to add, no capacity since 2019. The remaining partners filed accounts in 2020 for 2019 with those changes unknown to the now deceased partner.

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paddle steamer
By DJKL
18th Apr 2024 12:49

Unless the partnership has some mechanism/legal deeds to show its title to the property I cannot see how the partnership debits and credits that they choose to make gets them any closer to being able to own/control/sell the property, the title to the property will surely follow its ownership and likely the will that governs said succession that is valid within the country where the property is located.

Regarding any bookkeeping on the death of the partner, it may be best approach is to appoint a solicitor and accountants to act for the deceased's estate in that regard, reviewing partnership agreement etc to ensure accounting done by remaining partners is acceptable.

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Replying to DJKL:
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By noobjock
18th Apr 2024 13:01

DJKL wrote:

Unless the partnership has some mechanism/legal deeds to show its title to the property I cannot see how the partnership debits and credits that they choose to make gets them any closer to being able to own/control/sell the property, the title to the property will surely follow its ownership and likely the will that governs said succession that is valid within the country where the property is located.

Regarding any bookkeeping on the death of the partner, it may be best approach is to appoint a solicitor and accountants to act for the deceased's estate in that regard, reviewing partnership agreement etc to ensure accounting done by remaining partners is acceptable.

Hi,

Thanks for your reply, this is my own and the non business associated family members thinking also.

It just seems like a wild way to try and steal a personal property from a partner.

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Replying to noobjock:
paddle steamer
By DJKL
18th Apr 2024 13:26

How does it try to steal anything- if I include your house in my balance sheet so what, I made a bookkeeping entry that is pure fiction, this sounds the same.

Hire some pros, let the other side know this is the case, see what develops.

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