Who will make decisions and manage the business if you arent able

April 18, 2011
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Having listened to and advised business owners for almost 20 years, I have learned that one of the most important, enduring and difficult decisions is choosing who will make decisions about and manage your business when you are not able to do so, whether due to your incapacity or death. An individual or a bank or trust company may be named as fiduciary to do so. A fiduciary is someone who stands in a relationship of trust and confidence to perform a designated task.

Having listened to and advised business owners for almost 20 years, I have learned that one of the most important, enduring and difficult decisions is choosing who will make decisions about and manage your business when you are not able to do so, whether due to your incapacity or death. An individual or a bank or trust company may be named as fiduciary to do so. A fiduciary is someone who stands in a relationship of trust and confidence to perform a designated task.

Naming a fiduciary is an enduring decision because the fiduciary may serve in this role for a long time. It is an important choice, as the decisions made by the fiduciary will impact your business and family, perhaps permanently. It is a difficult decision because you may have been so involved running the business that you have not groomed a management team or successor. Further, selecting somebody means not selecting someone else, and managing expectations and feelings of those not selected is not easy. 

If you do not make the choice, it will be made for you by someone else. Depending on the estate plan you have in place, this may be your family or a probate court judge. These persons may not be familiar with all the facts and circumstances, the qualifications of those available for consideration, or your thoughts on the subject. As a result, their decision may be vastly different, and perhaps worse, than what you would decide.

Different fiduciaries may be selected for different roles and to serve at different points in time. The personal representative is the fiduciary named in your will responsible for administering assets in your probate estate; that is, assets in your name alone and which do not pass to a named beneficiary. This person only steps in to manage assets after your death. The trustee is the fiduciary responsible for administering assets in your trust, and may manage assets upon your death or incapacity. An agent under power of attorney manages assets in your name alone during your lifetime, typically only if you are incapacitated. 

It is often recommended that the same person/bank be named as personal representative and trustee, as both roles are very similar and often overlap — the only distinction being that one is responsible for assets titled in your name individually and the other is responsible for assets titled in your trust. Both are responsible for collecting and protecting the assets of the estate/trust, filing tax returns, paying debts and expenses, and keeping the beneficiaries informed. 

If you own a business, the fiduciary will step in your shoes as owner and will be responsible for, among other things:

**Electing and/or removing directors of a corporation or the manager of an LLC.

**Deciding whether to hold, sell or merge the business or its assets.

**Negotiating the price and terms of a sale.

**Managing the business and putting a management team in place.

**Negotiating existing or new financing.

**Developing a business plan or budget.

Your initial reaction may be to name family members in this role, especially if a family member is involved in the family business. However, keep in mind that family conflict may be created or exacerbated if one family member is put in control as fiduciary. Further, there may be a conflict of interest between the family member’s role as fiduciary and his or her role as employee or owner. Finally, you need to ask yourself whether this individual will be able to devote the time and attention required to this role. 

Banks and trust companies have the advantages of institutional experience and resources to manage and evaluate investments and alternatives free of family conflict. But, bank fees can be substantial and detract from investment returns, and not all banks are well suited or inclined to hold closely held business interests. Individual advisors or family friends, on the other hand, may have knowledge of your personal and business relationships without the complexity of being involved in family conflict.

Special fiduciaries can be named to handle only certain assets, such as family business interests. Thus, while a family member or bank may be fiduciary as to all non-business assets (life insurance, brokerage accounts, real estate, etc.), a trusted advisor may serve as special fiduciary with respect to stock in your business. Further, committees of advisors and individuals can be named to advise the fiduciary on business matters.  In either case, your estate plan should clearly delineate the roles of all parties involved, and who is responsible for advising and who is charged with making the decisions.

Regardless of who is selected, consider providing a mechanism by which a successor can be designated to take over if the fiduciary dies or resigns. Also, should an individual or group of individuals have the power to remove a fiduciary? This is often recommended if an institution will be named to accommodate mergers of banks or changes in banking relationships.

Selection of your fiduciary is a very personal matter. Seeking the counsel of your advisors can help you evaluate your options and choose a fiduciary with confidence. One of the keys to the success of your business is effective selection of your fiduciaries.

Susan Gell Meyers is a partner at Warner Norcross & Judd LLP. She focuses her practice on estate and tax planning for individuals and family business owners, including development and implementation of plans to effectively transfer ownership and management to next generation owners.

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