CRAIN’S CLEVELAND | Flexibility: A key consideration in estate and business planning

By DAVID W. WOODBURN AND RONALD F. WAYNE, BUCKINGHAM, DOOLITTLE & BURROUGHS LLC

Just imagine what would happen if a company could never deviate from business plan that was implemented 30 years ago and had no ability to adapt to changing circumstances.  That old plan, unable to take into consideration advancements in communications, technology and the like, would certainly drive the business to extinction.  But, every day, business succession and estate planning documents are drafted which are very close to irrevocable and unchangeable despite whatever the future might bring.

In the estate and business planning world, flexibility is a key objective. Over time, wealth changes, science and technology changes, tax law changes, and relationships with family and business colleagues change. But if one or more of the principals in a closely held business, becomes incompetent as a result of advanced age or mental disability, the business and the other individuals involved may find themselves drawn into a probate court guardianship proceeding in order to run the business or effectuate change. That means aspects of the affected individuals’ personal life or business dealings may become part of the public domain since probate court records are open to public inspection, even online.

How can we guarantee future flexibility even in the face of possible future incapacity?  When the use of a trust is not feasible or has not yet been contemplated, executing a well-considered durable power of attorney, perhaps the most versatile document in the estate and business planner’s arsenal, may well be the answer.

A closely held business owner should consider specifically authorizing his attorney in fact under a power of attorney to complete or modify the terms of buy sell agreements, close corporation agreements and other governance agreements.  Since 2017, the business owner may not only authorize his attorney in fact to modify a trust which holds business interests but even to create a trust to hold and manage business interest as a probate and guardianship avoidance device.  This guarantees privacy in the event of a subsequent disability or death.  Of course, the power of attorney must be executed while the principal is competent so there is no time like the present to plan for this contingency.

Every business owner should review his or her estate planning documents to determine if it is in their best interest to grant their agent the authority to:

• Amend, or revoke the terms of existing Buy/Sell and Closely Held Agreements;
• Create such documents if none exist;
• Vote shares or units;
• Resign positions such as Officer, Director, Trustee and Managing Member;
• Create a business advisory committee in your trust;
• Gift shares or units to family members if permitted under the governing documents;
• Fulfill the terms of an executory Buy/Sell Agreement, which becomes effective upon your subsequent disability or incapacity;
• Create a trust to hold your business and nonbusiness assets in the event of incapacity or disability.

By designating trust advisers and protectors in the business owner’s trust… [More]