Business Succession Planning For Business Owners
Business Succession Planning

Business Succession Planning For Business Owners

A business owner without a business succession estate plan, is a business owner whose business and personal estate are both in jeopardy, says the Augusta Free Press in an article that asks “Own a business? 5 reasons you need an estate plan.”

You need more than a will to plan for incapacity. If you become ill or incapacitated, a will isn’t the business succession estate planning tool that will help you and your family. What you need is a power of attorney (POA). This document names another individual or individuals to manage your finances and your business dealings, while you are unable to do so. Your estate planning attorney can create a power of attorney that limits what the named person, known as an “agent” may do on your behalf, or make it a broad POA so they can do anything they deem necessary.

Your state’s estate plan may not align with your wishes. Every state has its own laws about property distribution in the event a person does not have a business succession estate plan. A popular joke among estate planning attorneys is that if you don’t have an estate plan, your state has one for you—but you may not like it. This is particularly important for business owners. If you have a sibling who you haven’t spoken to in decades, depending upon the laws of your state, that sibling may be first in line for your assets and your business. If that makes you worried, it should.

Caring for a disabled family member. A family that includes individuals with special needs who receive government benefits requires a specific type of estate planning, known as Special Needs Planning. This includes the use of trusts, so a trust owns assets the assets for the benefit of such a family member without putting government benefits at risk.

Help yourself and heirs with tax liability. If your future plan includes leaving your business to your children or another family member, there will be taxes due. What if they don’t have the resources to pay taxes on the business and have to sell it in a fire sale just to satisfy the tax bill? A business succession estate plan, worked out with an experienced estate planning attorney who regularly works with family-owned businesses, will include a comprehensive tax plan. Make sure your heirs understand this plan—you may want to bring them with you to a family meeting with the attorney, so everyone is on the same page.

Avoid fracturing your own family. An unhappy truth is that when there is no estate plan, it impacts not just the family business. If some children or family members are involved in the business and others are not, the ones who work in the business may resent having to share any of the business. How to divide your business is up to the business owner. However, making a good plan in advance with the guidance of an experienced advisor and communicating the plan to family members will prevent the family from falling apart.

There’s no way to know how family members will respond when a parent dies. Sometimes death brings out the best in people, and sometimes it brings out the worst. However, by having an estate plan and business plan for the future, you can preclude some of the stresses and strains on the family.

Learn what business succession planning is all about.

Reference: Augusta Free Press (August 13, 2019) “Own a business? 5 reasons you need an estate plan.”

Avoiding a Family Feud When Choosing a Power of Attorney
Having Power of Attorney in Place Gives Peace of Mind

Avoiding a Family Feud When Choosing a Power of Attorney

The challenge in tasking a family member or trusted friend is not just making sure they have the necessary skills, but to navigate family dynamics so that no fights occur says Considerable.com in the article “How to assign power of attorney without sparking a family feud.” Every family situation is different, but in almost all cases, a power of attorney helps a lot.

Start by understanding exactly what is meant by power of attorney, how it functions within the estate plan, and how siblings can all be involved to some degree with the family’s decision-making process.

Power of attorney is a term that gives an individual, or sometimes, individuals, the legal authority to act on behalf of someone else. It is usually used when a person, usually a parent or a spouse, is unable to make decisions for themselves because of illness or injury. It must be noted that power of attorney relates to financial and legal decisions. There are methods to address making decisions for another person for their health care or end-of-life decisions, but they are not accomplished by the power of attorney (POA).

It should be noted that there is a distinct difference between power of attorney and executor of the estate. Power of attorney is in effect while the person who has granted the authority is alive, but unable to act on their own behalf. The executor of the estate assumes responsibility for managing the estate through the probate process. While they are two different roles, they are often held by the same person, usually an adult child who is responsible and has good decision-making skills.

There are different types of power of attorney roles. The most common is the general power of attorney, followed by the health care or medical power of attorney. The general power of attorney refers to the person who has the authority to handle financial, business or private affairs. If a parent grants power of attorney to one of their children, that child then has the authority to act on behalf of the parent.

Trouble starts if the relationship between siblings is rocky, or if major decisions are made without discussions with siblings.

It’s not easy for siblings when one of them has been granted the power of attorney. That means they must accept the inherent authority of the chosen sibling to make all decisions for their parent. The sibling with the power of authority will have a smoother path if they can be sensitive to how this makes the others feel.

“Mom always liked you best,” is not a sentence that should come from a 50 year old, but often childhood dynamics can reappear during these times.

Remember that the power of attorney is also a fiduciary obligation, meaning that the person who holds it is required to act in the best interest of the parent and not their own. If the relationship between siblings is not good, or there’s no transparency when decisions are made, things can get bumpy.

Here are some tips for parents to bear in mind when deciding who should be their power of attorney:

  • Understand the great power that is being given to another person.
  • Make sure the person who is to be named POA understands the entire range of responsibilities they will have.
  • The siblings who have not been named will need to understand and respect the arrangement. They should also be aware of the potential for problems, keeping their eyes open and being watchful without being suspicious.

Some families appoint two siblings as a means of creating a “checks and balances” solution. This can be set up so the agents need to act jointly, where both agree on an action, or independently, where each has the full authority to act alone. In some cases, this will lesson the chances for jealousy and mistrust, but it can also prolong the decision-making process. It also creates the potential for situations where the family is engaged in a deadlock and important decisions don’t get made.

Parents should discuss these appointments with their estate planning attorney. Their years of experience in navigating family issues and dynamics give the attorneys insights that will be helpful with assigning these important tasks.

Learn how a good power of attorney can give you peace of mind.

Reference: Considerable.com (July 10, 2019) “How to assign power of attorney without sparking a family feud”

Make Sure Your Power of Attorney Works When Needed
Daughter Helping Mom With Power of Attorney

Make Sure Your Power of Attorney Works When Needed

If you present a POA (Power of Attorney) to a bank and the agents are described as Bill and Samantha, for instance, instead of Samantha or Bill, the bank clerk may bristle. John as agent under power of attorney with Mary as successor agent is more likely to be acceptable. The use of the word “and” in a POA often presents a problem to banks. Did the document get drafted with the intent that Bill and Samantha both be present for any transactions? Having the right power of attorney is critical.

In Pennsylvania, major changes were made to the POA law in 2014 that addressed wording, witnessing and other requirements and protections for the party accepting the POA. The “Vine fix” law describes what a bank, financial institution or other party who is presented with a POA can and cannot do. The “Vine fix” provides immunity to anyone who accepts a POA in good faith, without actual knowledge that the POA is invalid, says The Mercury in the article “Planning Ahead: Will your bank honor your power of attorney?”

This law came about as a result of a case, Vine v. Commonwealth of PA State Employees’ Retirement Board. A Pennsylvania State employee, who was incapacitated following a car accident and a stroke, was given a POA to sign by the man who was then her husband. He changed her retirement options and later filed for divorce. At issue was the question of whether Mrs. Vine could invalidate his option and file for disability benefits. She did not have legal capacity, when she signed the document.

This was a case of hard facts making bad law. The State Supreme Court found that a third party (the Pennsylvania State Employees Retirement Board) could not rely on a void power of attorney, even where it did not know it was void when it was accepted. Banks saw the decision and were concerned that they could be sued for damages in similar cases.

The new law offers some immunity and additional protections for banks. However, as a result, there’s a little more push back with banks recognizing agents under power of attorney. The bank can request an agent’s certification or affidavit or opinion of counsel, as to whether the agent is acting within the scope of his legal authority. There is still a civil liability for refusing to accept a power of attorney that meets all the requirements.

Some estate planning attorneys have their clients obtain Power of Attorney forms directly from the institutions. This decreases the chances of any problems, when POAs are presented. It’s also a good idea to update the POA when you update your estate plan, which should be every three or four years. Regardless of your state of residence, a POA dated 10 or 15 years ago is likely to meet with some scrutiny. Talk with your estate planning attorney about the best way to address this in advance.

Learn what a good power of attorney can do for you.

Reference: The Mercury (April 2, 2019) “Planning Ahead: Will your bank honor your power of attorney?”