A Lasting Power of Attorney enables someone to support you and make decisions that you are unable to, it is fundamental to good financial management and providing you with the care you would need in difficult times.
Business owners have a range of advisers, including accountants, financial planners and solicitors. It is easy for these advisers to work independently of each other, but the true value of the advice is when we work together as a team.
It can be difficult for healthy business owners to imagine being unable to make decisions for themselves, however recent events have begun to make people reconsider this.
Cash flow Modelling can be useful when considering the necessity of an Lasting Power of Attorney. Looking at your current and projected cash flow requirements gives you the opportunity to consider ‘what if?’ It enables you to clearly see just how much money you need in order to cover your business expenses or personal living costs, and how those might increase if you or one of the key individuals in the business needs additional care. This also enables you to really think about your protection needs and whether you have appropriate insurance in place.
The following questions should be considered:
- How would you continue to pay the bills if you couldn’t work?
- What if you ran up unexpected debts?
- What would you do if you had to give up work to care for your spouse, parent or child?
- What might happen to your capital/assets if you hadn’t appointed anyone to look after them?
In order to put in place an Lasting Power of Attorney you should speak to a solicitor who will talk to you about specific considerations such as who should act as your attorney. Most chose family members, but you should understand the burden that being an attorney places on that family member. Running their own lives and the financial affairs of the donor can become a strain.
For family business owners, putting in place an Lasting Power of Attorney is crucial. A family business is likely to be your main source of income and/or form a significant share of your retirement pot. You must consider the huge impact that loss or impairment of their mental capacity will have on your business and financial future. You should ask yourself:
- Who would be best placed to manage the business?
- Will the attorney be allowed to charge or draw a wage for their time in running the business?
- Does the attorney have the necessary skills or qualifications to continue to run the business?
- What obligations does the client owe to the business investors?
- If you own several businesses do you need different Lasting Power of Attorney for each business?
- Does the legal structure of the business permit an attorney to act?
A business Lasting Power of Attorney is essentially no different than a normal Lasting Power of Attorney. The key difference is that a business Lasting Power of Attorney restricts the attorney’s authority so they may only deal with the individual’s business interests.
You can make a separate Lasting Power of Attorney enabling other attorneys to deal with their personal finances.
It is important to be aware that the underlying legal structure of a business may provide terms on what should happen if the owner loses capacity. For example, the model articles for companies provide that a director’s appointment is immediately terminated if they lose their mental capacity. This would mean an attorney cannot act on the individual’s behalf as they would no longer be a director. This could cause significant issues in the exercise of voting rights, placing the management of the business at risk.
If you would like to discuss anything mentioned above in further detail, please get in touch.