There are a number of widely held misconceptions regarding Powers of Attorney: I don’t need a Power of Attorney; my ‘next of kin’ can deal with everything automatically; my assets aren’t worth much; they are only needed by those in the “later stages” of their lives. These statements are simply incorrect. Powers of Attorney are for everyone at every stage of their lives.
We find ourselves preparing for the unexpected in other areas of our lives such as having insurance in place in the event of an accident and life policies in the event of critical illness. However, when it comes to making the necessary preparations in the event of us being unable, for whatever reason, to deal with our own affairs, as general rule of thumb we are less organised. This is a significant risk area, especially for business owners who often have complex affairs. Before considering the specific risk areas for business owners, it makes sense to set out briefly what a Power of Attorney actually is.
What is a Power of Attorney?
Put simply, it is a written document which gives legal authority to another person (or persons) to deal with your financial and/or welfare affairs. The majority of people will opt to put in place a Power of Attorney which covers both finances and welfare this is called a Combined Power of Attorney. Examples of financial powers your chosen Attorney(s) may have include buying and selling property, dealing with your bank accounts and instructing professionals, such as Solicitors, to act on your behalf. As for welfare powers, this includes the ability to decide where you should live, what medical treatment you are to receive and what you will do on a daily basis. The key difference between the financial and welfare powers lies in when each set of powers can be used by your Attorney(s). For financial powers, these can usually be used immediately upon registration of the Power of Attorney document with the Office of the Public Guardian (unless you insert certain wording which prevents this immediate activation), whereas the welfare powers can generally only be used if you are assessed by a medical practitioner as being incapable of making decisions in relation to your welfare
Dealing with your Business Interests
Whilst the welfare aspect of your Power of Attorney is undoubtedly important, the following focusses on the financial side of this document.
Within the ambit of financial decisions to be made, your Attorney(s) can act on your behalf in relation to your business interests -it is not just your personal affairs. Whilst the Power of Attorney can be used as a matter of convenience, the clear risk area it covers is what would happen in the event that you lose capacity to manage your business capacity, even temporarily. Incapacity can strike at any age and stage. It may be through gradual deterioration of your cognitive abilities such as dementia, or through an unexpected tragedy such as stroke, or an accident.
In practice, you may find issues arising in relation to your business affairs. Contracts entered into, particularly if mid-way through a transaction, may become unenforceable due to your loss of capacity. What would happen in terms of the general day-to-day running of the business? Who would continue to pay bills, receive payments, and deal with third parties (be they customers, sub-contractors, business intermediaries or otherwise)?
Who do you appoint as your Attorney(s)?
The key to choosing Attorneys is thinking about who you can rely on and trust. If your affairs include business dealings, it is sensible to also think about who will have the necessary skills and knowledge to take on this role. It may be that there are a couple of people you think might be suitable but their abilities lie in different areas. It is possible to word the Power of Attorney to allow flexibility for them to act individually and in line with their strengths. You may wish to appoint some people as your welfare Attorney, with others taking on the role of financial Attorney. It is also possible to appoint professionals, such as Blackadders Trustees Limited, to be financial Attorneys. We have the advantage of independence, reliability and expertise across a range of financial matters.
Peace of Mind
Whether you are a sole trader, a partner in a farming partnership, or significantly involved in a company, you should always ensure that your affairs are in order. We strongly recommend that you have a Power of Attorney in place to ensure that your business can continue in the event you become incapable.
Having a Power of Attorney in place will give you peace of mind. Think of it like insurance in the sense that it sits in the background until such a time as it may be needed in the future.
If you would like advice about Powers of Attorney, please get in touch with the Blackadders’ Private Client Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
Robyn Lee, Solicitor
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