When a person considers business, estate and succession planning, the big items at the top of their mind may include things like a will or an operating agreement.
But there are additional documents to consider that can potentially aid in a smooth transition for both a business and a family when unexpected life changes occur. While some of these “ancillary estate documents” – as they are often called – are specific to each state, a durable power of attorney and medical power of attorney are fairly universal and should be considered as part of your business succession and estate plan. These documents allow you to name the person or persons in charge when you are not able to be.
Durable power of attorney (POA)
A durable power of attorney gives one person, the agent, the authority to act on business affairs of another, the principal. The POA may be very broad or, alternatively, limited in scope. For example, it may allow the agent to act on “all financial transactions of the principal,” or it may be more limited to allow the agent to “only act on real estate transactions in Texas.”
The principal also has the option to determine when the POA goes into effect and also the duration of the POA. It may be effective immediately, or it may only go into effect if the principal is incapacitated, meaning unable to act on his or her own behalf. An example of incapacitation would include something like a medical coma or some other medical issue that affects a person’s ability to make decisions. If a POA is completed, an agent can continue to keep a business running and bills paid during this time. You may want to make it effective immediately if, for instance, your son is farming alongside you and he needs to be able to handle banking business for you when you are out of town.
The POA may only be valid for a certain time frame, or it may be valid until you choose to revoke it. An important thing to remember is: All POAs become invalid at the principal’s death. So that means the agent may not sign for or act on behalf of the principal after that time. Depending on the business dealings of the principal, some sort of probate action may need to be taken, or there may be other contractual means, such as signature authority at banks or partnership agreements, that will allow someone to handle business affairs after another’s death.
Medical power of attorney (MPOA)
A medical power of attorney is similar in mechanism to the POA, but instead of business and financial transactions, the MPOA allows an agent to act on behalf of the principal for medical purposes. An MPOA does not go into effect until the incapacitation of the principal. Many people think an MPOA is not necessary because doctors will typically give information to a spouse without an MPOA on file so they are covered. It is still recommended to complete an MPOA with alternate agents named, however, in the event your spouse is unavailable.
Naming an agent
Both the POA and MPOA allow you to name just one or multiple agents. A single agent would act alone and independently from anyone else. Depending on how it is written, co-agents could be required to all sign off on something. This may be a good idea if you think the co-agents will make better decisions working together. But it may not be necessary and end up being time-consuming to obtain all the signatures if you trust one person to make these decisions alone. The principal may also name co-agents but state that they may act independently. This would mean one co-agent could make a decision without the other co-agent’s consent. This may be helpful if you would like more than one person to be able to handle business for you if one of the other agents named is unavailable.
It is also recommended that you name successor or alternate agents in the event your primary agent may not act for you. A successor agent would not be eligible to act unless the primary agent is unable to do so. Consider a married couple who named each other as their respective agents. What if they were both in an accident and neither could help make medical or financial decisions for each other during their incapacitation? If an alternate agent is named, that person may step in to help.
Choosing a person to act for you is an important decision. An agent should be someone you trust and is capable of doing the things you have asked of them when giving them the responsibility. And keep in mind, you do not have to name the same person to handle your business affairs and your medical decisions. You may have a daughter who knows the family business and is financially savvy, so she makes a good fit to have POA to handle financial matters. But your son, a nurse, may make more sense to be named as your MPOA because he understands that field. Ultimately, it is truly dependent on your family and business dynamic.
Special power of attorney
An attorney can draft a special power of attorney, which simply means it is very limited to some specific task or business item. In addition, some agencies provide special powers of attorney you may use with them but are not valid at other places of business. A POA form with the Farm Service Agency (FSA) allows another to sign paperwork for you at that office. This is especially handy for landowners who rent land on shares and the FSA requires their signature for sign-ups.
If an FSA POA is completed, the tenant farmer can sign most documents on the landowner’s behalf. This FSA POA is only valid at the FSA office and cannot be used on all forms, such as the adjusted gross income certification. In some states, other agencies may provide special POA forms to change car titles at the vehicle registration office. These types of POAs can be very useful and are especially helpful when a person just needs signature authority for a very limited purpose at a specific place.
Overall, durable and medical powers of attorney are useful tools that can be easily implemented into a succession plan. They may be tailored for you by drafting the language in accordance to what best fits your needs. Consider these when starting or updating your estate and succession plans to ensure a more well-rounded transitional period for your loved ones and the next generation.
