Recently, I noted an alarming article in the Washington Post entitled “He had power of attorney over his Alzheimer’s afflicted mother – and stole $332,000, grand jury says.” This article described a woman who named her son, John Jerome O’Hara, as her Attorney-in-Fact pursuant to a General Durable Power of Attorney. The Attorney-in-Fact has the authority, under a General Durable Power of Attorney, to handle financial matters for the person granting this power. Mr. O’Hara, according to the grand jury indictment, mightily abused his fiduciary authority by improperly using his mother’s funds to pay for his own expenses, while at the same time neglecting to pay for his mother’s living expenses. His mother suffered from Alzheimer’s disease and presumably lacked knowledge that her son was taking advantage of her.

Often, we work with clients who assume that they are “supposed to” name family members to handle fiduciary roles in their estate planning. That’s simply not true. Not everyone is cut out for the rigorous task of serving in that role. Generally, we suggest to our clients that they select an Attorney-in-Fact whom they trust, and who is financially astute. If the person they choose fails to fit the bill, the result can be an extreme abuse of authority, such as described in this article, or sloppy instances of missed payments, accidental co-mingling of assets and poor record keeping. More family tension can be created by naming the wrong family member to take on this role, as opposed to going in a different direction.

What are your options if you don’t feel comfortable naming a family member as your Attorney-in-Fact? You can always initiate a conversation with a trusted friend, see if they are willing to serve in that capacity and if so, nominate them as your Attorney-in-Fact. Another great option is to select a professional fiduciary. Thankfully, the Seattle area offers numerous professional fiduciaries to choose from. Do you have to pay them? Of course. But it’s quite likely that the pay would be considerably less than the $332,000 allegedly swindled by Mr. O’Hara. And a professional fiduciary can offer experience, financial acumen and a sense of neutrality that may be quite helpful in navigating emotionally-charged family financial matters.

Do you need help in selecting the right Attorney-in-Fact to address your unique situation? Please contact us,  we would be happy to assist.

This month, I am enjoying an amazing vacation in Australia! I will be out of the office for three weeks, which is my longest vacation since I started my law firm in 1999. My travel tastes generally lead me to larger urban areas with 4G internet access. In this instance, I have centered my vacation time in Australia’s two largest cities – Sydney and Melbourne. In addition, my personality generally calls me to be accessible at all times. This vacation is no exception. I am happily using my Verizon Global Pass and traveling with my smart phone, MiFi, laptop and even a mobile printer/copier/scanner. I am staying in contact with my law firm during my absence and can take care of needed business.

But suppose, that sort of vacation was not in my nature? Instead, suppose I dreamed of a three-week vacation traveling through the Australian Outback with a backpack and no internet connection? And then, to conjure up some imaginary problems, suppose a client requested that his funds being held in our trust account be returned to him, but no one had the authority to issue that refund to him? Or, suppose my cat and our Office Morale Leader Roger was injured, and the cat sitter couldn’t reach me to facilitate payment to the veterinarian?

If you are inaccessible while on a vacation, from a practical standpoint, is that any different than if you were in a coma? In both cases, if something happens, you can’t take care of it.

Is the answer to always be accessible? No, not if that’s not in your nature. Instead, the answer may be to execute a limited power of attorney that would come into play if you intend to be both absent and inaccessible for a long period of time. If you own a business, that limited power of attorney can help in making sure that the person you name to be in charge during your absence, known as the Attorney-in-Fact, has the authority to issue the trust payment to the client or take care of other urgent matters related to the business. And, if you don’t own a business, that limited power of attorney can still be helpful in making sure that your Attorney-in-Fact has the authority to make a judgment call about the payment to be made to the veterinarian (anyone who I would nominate would know that money is no object when it comes to my cat Roger!) and be able to facilitate payment from my accounts for the bill.

In other words, a limited power of attorney can help you responsibly take that lengthy vacation in which you, literally, “unplug” from technology and being accessible. If you are planning a trip and need some assistance in this regard, we’d be happy to help!

 

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As I wrote in my last post in this series, a business succession plan is a plan for how the transfer of ownership and management of a business will occur when an owner is no longer in charge. A succession plan is important to provide for a way for the business to continue to function even after an owner dies, becomes incapacitated, or just moves on to their next adventure. In my prior post, I wrote about basic considerations for business owners in succession planning for their business. This post discusses special considerations in succession planning for businesses with more than one owner. Other posts in this series will discuss succession planning for businesses with one owner and special considerations in succession planning for family businesses.

When a business has more than one owner, the co-owners will need to work together in developing a succession plan. They should discuss with one another what they want to happen to the business if one owner is no longer able – or willing – to participate in the business. Frequently, business owners who have worked together, sometimes for years, to build a successful business do not want to risk the value they have built in the business if one owner were to cash out to a third party, or pass their interest in the business along to a family member who may have little or no knowledge about or aptitude for the business. On the other hand, owners do want to be able to benefit from the value that they built in their business, or at least provide a mechanism for their heirs to receive a financial benefit.

Owners can commemorate the decisions that arise from their succession planning discussions in a Buy-Sell Agreement. A Buy-Sell Agreement sets forth the terms under which the business owners agree to purchase the ownership interest in the business from a departing owner or, correspondingly, to sell their ownership interest in the business to the remaining owners. A Buy-Sell Agreement might be in the form of a standalone document, or it can be incorporated into the terms of the Operating Agreement (for a LLC) or the Shareholder Agreement (for a S-Corp).

In developing a Buy-Sell Agreement, owners may want to consider how they want the transfer of their interest in the business to be handled. For example, do the owners want to require that the interest of the departing Member (for an LLC) or Shareholder (for a S-Corp) be purchased by the company, or would the remaining owners have the option to purchase the departing owner’s interest? What are the circumstances that would trigger the requirements to buy and sell an owner’s interest in the terms of the agreement? How will the company pay for the purchase of the ownership interest? Will payments be made over a period of time, or in a lump sum? Does the business (or do its Members or Shareholders) have sufficient cash on hand? If not, the owners may want to consider requiring the company to obtain a life insurance policy on the owners in order to finance the purchase of their ownership interest.

Effective Buy-Sell Agreements are specialized documents tailored to a business’s specific needs, priorities, and financial condition. Having a Buy-Sell Agreement that meets the needs of the business – and its owners – is an important part of having a business succession plan that benefits both the departing owner and for those remaining in the business. Ready to develop your business succession plan? We can help!