Deceased Partner in Law Firm - How to handle future distributions?

[gfizer]

I am preparing a partnership return for a law firm. One of the partners passed away in February of 2012. He had earned fees prior to his death and the remaining partners have agreed to split fees that come in on his ongoing cases equally between the deceased partner's estate and the partner who took over the case at his death. Obviously, this situation could continue for at least a few years until all of the cases that were ongoing at the time of his death are finalized. How would you guys handle this situation both for 2012 and for the years to come?

[Richcpaman]

_{Wouldn't you just have a partner K-1 that is listed as the estate, that steps into the shoes of the deceased partner? Obviously no Sch SE income from that.}

_Rich

[gfizer]

Bump! I'm probably over thinking this but I could really use some input. Thanks!

[TaxesNE1]

You have two separate kinds of income here. The partner's share of income before he died goes on a K-1. From the moment of his death, however, his estate would own all the income due him under the partnership agreement. From your description, it sounds as though the surviving partners made decisions concerning the division of income AFTER the partner died. This opens up a whole can of worms. I could try and take you through this maze of complexity but would advise you instead to turn this over to an estate tax attorney. You must also consider whether and, if so, how community property rules would apply and also whether the size of the estate requires additional work be done.