Q. How do we make out beneficiary papers with each of our members? One of our members is going through divorce procedures and this was a question that was brought up.

A. Although many club members are interested in naming beneficiaries, I've got some bad news for you. If your club is formed as a partnership, then the partners can't legally establish beneficiaries for their capital accounts in the club. According to NAIC, ownership interests in a partnership can't be passed on to anyone outside the partnership.

Here's the problem. Since the "beneficiary" might not be recognized by the courts, if you were to pay out the value of a deceased member's account to that "beneficiary," you would be leaving the partnership open to potential claims from other heirs. If there were any contested issues in the deceased's estate, the partnership could be liable for the amount wrongly paid to the "beneficiary." Or what if the deceased partner's will had other instructions for the disposition of the proceeds from the investment club account?

This is a matter best left for the probate system -- a mistake made in this situation could be an expensive proposition for the remaining partners.

So what happens when a club member passes away? NAIC recommends that you withdraw the member using the same procedures that you usually use in your club, making the check payable to the deceased partner. Then deliver the check to the estate of the deceased partner, typically to a spouse or other family member. That will ensure that the club doesn't get tangled in any unnecessary dilemmas.

(One last note: while NAIC's club accounting software does have an area in which you can enter the name of a member's "beneficiary," this should be used to maintain contact information in case of a partner's passing in order to carry out the above instructions. It is not the person to whom a deceased partner's account should be paid out.)