What happens if a partner dies

May 19, 2006

I'm forming a practice with two other doctors. If one of us dies, does his ownership interest pass to his estate? Should the remaining partners be required to buy his share? What should our contract say about transferring ownership in the event of death?

Q: I'm forming a practice with two other doctors. If one of us dies, does his ownership interest pass to his estate? Should the remaining partners be required to buy his share? What should our contract say about transferring ownership in the event of death?

A: The partners should buy his share, by means of a buy-sell agreement that you should include in your contract. The agreement should spell out specific terms-including a pricing formula or a fixed price-for the purchase of a deceased doctor's share. By establishing the price before the untimely death of any of the doctors, you minimize the chance of an heir challenging the valuation of the practice.

Upon the death of a partner, his ownership share will pass to his estate temporarily (typically for nine months) while the executor resolves estate tax and distribution issues.