You may think your succession planning is complete if you have prepared a will, successive appointors to your trusts and appointed a Power of Attorney. But it’s not!
Simply appointing an Enduring Financial Power of Attorney (POA) may not assist the ongoing management and control of the family business. An attorney only has the power to manage your personal assets and finances. Your attorney can do things such as operate your personal bank accounts, make decisions about your personal investments, pay your bills, and buy or sell property on your behalf. This can also include management of your superannuation fund which is particularly important for anyone who has a self-managed super fund.
However, appointing a financial POA is not a fix all solution and your family business may still run in to challenges if a business owner loses capacity.
The following limitations on what an attorney can or can’t do under a standard POA if you lose capacity may be unexpected:
- Your attorney can only act in a manner that will benefit you and they must not act to benefit other family members at your expense.
- If you are a director of a company, your attorney doesn’t become a director of the company in your place.
- If you act as a personal trustee of a trust, your attorney doesn’t become trustee of the trust.
- If you are an appointor of a trust, your attorney doesn’t become appointor of the trust in your place.
- Your Attorney can’t make decisions in the best interest of the family – decisions have to ignore such considerations and only be in the best interest [read “financial”] of the person who granted the POA.
Having mechanisms in place for when a family member who controls aspects of the family business, whether as a Director, Trustee or landowner, loses capacity are crucial. In their absence your family business may be completely unable to function or make decisions in the best interest of the family.
Over the next few weeks we will look at issues and solutions to help prevent these issues from arising in your family business.
It is important to remember a POA is not an alternative to effective succession planning.