Estate planning for the small business owner

It’s much more than planning for distribution of property

The estate planning process for businesses owners can be complex and certainly exceeds the space limitations of this article. A general understanding of the estate planning process and, in particular, those planning issues that are unique to business owners, will enable a business owner to effectively prepare for meeting with his or her estate planning advisers.

The following addresses each of the contingencies, explaining briefly those considerations that are unique to business owners.

 • Managing a debilitating illness: A basic legal premise is that you are the only one able to make your own health care decisions, regardless of the state of your mental competency.

When an individual lacks the mental or physical capacity to participate in his or her health care decisions, the traditional response of the legal system has been to appoint a guardian to make health care decisions on behalf of the disabled individual. Appointment of a guardian to make health care decisions is, however, costly and can be time-consuming.

As an alternative to the traditional legal response to disability, most states have adopted statutes that allow another individual to make health care decisions during periods of disability. In New Hampshire, we have an “advance directive” that consists of two separate documents: a durable power of attorney for health care and a living will.

The first enables an individual to authorize another person to make health care decisions during periods of mental incompetency. The decision-making authority extends to withdrawal of life support in the event of a terminal illness. The living will authorizes medical professionals to terminate life-sustaining treatment in the event of incompetency coupled with a terminal illness.

The health care documents are universal for all individuals in New Hampshire and do not necessarily involve special considerations for business owners.

 • Management of property during disability: Periods of mental or physical disability that prevent us from managing property — such as a business — can create significant hardships in the absence of advance planning.

Once again, the traditional approach to management of one’s property during a period of disability was to seek appointment of a guardian. As an alternative, most states have adopted statutes that authorize another person to manage property during periods of disability.

In New Hampshire, an individual can authorize another, known as an “agent” or “attorney in fact,” to manage his or her property by preparing a durable power of attorney. In most instances, the power conferred is effective from the moment the document is signed. In some cases, a durable power of attorney is held in escrow to be released to the agent or the attorney-in-fact only upon certain circumstances – typically delivery of a letter from a physician stating that the principal is incompetent and can no longer manage his or her property.

Under both scenarios, care must be taken to identify an agent who is trustworthy and shares the personal ethics of the person granting the authority.

Although an effective tool, a durable power of attorney is often less desirable than creating a business dynamic that will ensure business continuity during the owner’s incapacity.

In the context of a business, it is often possible and appropriate to identify a key employee or family member familiar with the business to manage the business during the owner’s absence.

For example, the owner of a small corporation may serve as president, with a key employee or family member also identified as an officer of the corporation, such as treasurer or vice president, also with concurrent authority to manage business assets.

Again, great care must be given to select officers who are trustworthy and share the owner’s sense of ethics. Many business organizations adopt contingency plans detailing management reactions to the absence of the owner or other key business participants.

Development of such a plan is typically complex and time-consuming, and should be undertaken with the assistance of financial and legal advisers.

Contingency plans addressing an owner's absence from the business are most commonly part of an overall business continuation plan that also addresses management and transfer concerns in the event of death – a topic that I will address in a later article.

Kenneth R. Cargill is a shareholder and director of Cooper Cargill Chant, a law firm with offices in North Conway and Berlin. He can be reached at 603-356-5439 or kcargill@coopercargillchant.com.