Han v. Hallberg: An Illustration on Importance of Proper Business Succession Planning

A case ruling by a Court of Appeals in the summer of 2019 underscores describes how complex partnership agreements can be when they intersect with trusts and other aspects of estate planning. The case, Han v. Hallberg, began all the way back in 2010 when an original member of a partnership, Dr. Richard Hallberg, passed away. 

Context

In 1975, Dr. Hallberg entered into a partnership with three other dentists for the purpose of owning and maintaining the dental practice’s office building. Twenty years later, around the time of the passage of the Uniform Partnership Act, the partnership agreement was amended to allow Dr. Hallberg to place his interest in the partnership into a living trust. The trustee, who was Dr. Hallberg at the time, was then considered to be a partner. Litigation was triggered when Hallberg passed away and the trustee (now his son) did not inform the other partners within 90 days that the estate intended to keep Dr. Hallberg’s interest in the partnership. The 90-day window was contingent upon Dr. Hallberg himself still being a partner at the time of his death. 

Litigation Begins

The amended partnership stated that if Hallberg’s trustee did not reach out within 90 days, the other partners would be able to purchase his interest as a price below the market value. Dr. Hallberg’s son contended that the below market discounts did not apply. When the surviving partners filed suit, the trial court ruled in favor of them, finding that the trust and Dr. Hallberg were not two separate entities and that he was, individually, a partner at the time of his death. The decision was appealed by Hallberg’s son, the trustee. 

Court of Appeals Reverses Lower Court’s Decision

In a reversal, the appeals court found that Dr. Hallberg’s trust was actually a separate entity and was functioning as the partner at the time of his death. The court leaned on the Uniform Partnership Act (1994), which states that a trust does indeed qualify as a “person” for the purposes of acting as a partner. Therefore, the trust into which Dr. Hallberg placed his partnership interest in 1994 is considered a partner to this day.  

Conclusion

Whenever you form, amend, or dissolve a business, you need an attorney who understands the law as it relates to businesses and estate planning. Attorney Tyler Dahl is well-experienced in this area of law in California. Reach out to the firm today to see what we can do for you.

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