Four dentists formed a partnership to acquire and maintain a dental office building. The then-partners amended their agreement to allow one of the partners to assign his partnership interest to his living trust, and to substitute the trustee who was the member as a general partner in place of the partner individually. When he died 15 years later, litigation ensued over whether despite the substitution, the “trustee” was still a partner at the time of his death, triggering certain partnership buyout provisions that applied in the event of a partner’s death.
The trial court concluded the trust was not a separate legal entity, and that the decedent was a partner at the time of his death. The court followed a published case that found “when a trustee of an traditional revocable trust enters into a partnership relationship in his capacity as trustee, it is he, and not “the trust” which is the party to that agreement”.
While a trust cannot act in its own name and must always act through its trustee, a trust is a “person” that may associate in a partnership under the Uniform Partnership Act (UPA) based on the plain language of the UPA’s definition of “person”. The clear statutory language is reinforced by other provisions of the statute, as well as by its legislative history.
Under UPA, a partnership is “an association of two or more persons,” and the term “person” is defined to include a “trust”. Specifically, the UPA defines a person as “an individual, corporation, business trust, estate, trust, partnership, limited partnership, limited liability partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.” (Id., subd. (13).) Thus, the statute on its own face includes both a “business trust” and a “trust” among the “person[s]” that may associate in a partnership.
The plain definitional language of the UPA and other provisions of the UPA – specifically the provisions identifying the events that dissociate a partner from the partnership further show that the statute contemplates no termination of partnership status when the trustee of a trust is replaced or dies.
To discuss your NJ business law matter, please contact Fredrick P. Niemann, Esq. at (732) 863-9900 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.