You are the senior executive of a successful family business. If you experience a stroke, or a heart attack, or are in a serious accident, such that you are in a coma, for example, or otherwise unable to act on your own behalf, what would happen to your business and other financial affairs?
With respect to your business, if it is a corporation, then your Vice-President, the corporate Secretary, and then the Treasurer would act in that order. However, if you serve in all of those positions, then you are left with a gap. Likewise, if you operate an LLC, your operating agreement would have alternate manager provisions (or provide for a vote by the other LLC members, if any, to name a successor manager).
However, if you are a sole proprietor, or someone would need to vote your shares of stock to elect a successor board member and officer, or would need to vote your LLC membership interests to designate a successor manager, then there’s a gap that creates a nuisance at best and a very large problem at worst.
In addition, in the situation of your incapacity or disability, you would also want someone to manage your personal financial or other legal affairs. In this situation, in the absence of appropriate planning, the default “solution” under the laws of most states, including Washington, is that a guardian must be appointed by the court and then that guardian acts under the court’s direction with respect to all of your business or other financial affairs. The court guardianship proceeding is public and the initial appointment of a guardian may involve a contest between two or more people as to who wants to control your business and other financial affairs as guardian.
Thus, avoiding this potential guardianship situation is perhaps even more important than having a Will.
The easy (and inexpensive) solution is a Durable Power of Attorney. A power of attorney document simply gives an agent (named by you) the authority to act on your behalf with respect to all of the matters set forth in the Power of Attorney document. Typically, a General Power of Attorney is utilized, which would give the agent (attorney-in-fact) under the Power of Attorney full authority to act in all respects in regard to your business, financial, and other legal matters. But without specific authority there are certain actions the agent cannot take, such as making gifts or changing beneficiary designations on retirement plans or insurance policies.
Thus, a critical step in your business management, as well as personal affairs, is to be sure that a successor would be able to act for you in the event of your disability or incapacity. This would be a successor in your business, such as a corporate Vice-President or an alternate manager in your LLC. Most importantly, with respect to any actions on your behalf personally, such as voting your stock or voting your LLC membership interest, or with respect to all your other personal financial and legal affairs, you should have a Durable General Power of Attorney in effect, which would name both an agent and an alternate agent.
Rick Klobucher advises clients on tax and other issues related to trusts and estates, both with respect to planning for transfer of estates to family members during lifetime and at death, and in the administration of estates and trusts. Rick can be reached at email@example.com or directly at 425.646.6131.