When people think of a power of attorney, their mind often jumps to medical care. Healthcare powers of attorney are a common—and valuable—estate planning tool. However, there are many kinds of powers of attorney that individuals can use.
Business owners specifically can use a financial power of attorney to protect their business' future.
First, a look at the basics of a power of attorney
Essentially, the power of attorney gives someone else the ability to make decisions on behalf of another. The person who receives a power of attorney is usually called the agent, and the principal is the individual who designates them as their agent.
If the principal is incapacitated, their agent then has responsibilities to:
- Make decisions in the best interest of the principal
- Follow the instructions included in the power of attorney document
- Record all of the decisions they make
The agent speaks for the principal when the principal cannot speak for themselves.
Why should business owners have a financial power of attorney?
Just like any other estate planning tool, individuals can include as many details and instructions in their power of attorney as they deem necessary. So, business owners can customize their financial power of attorney to meet their business' unique needs.
And if a business owner becomes incapable of running their business, the person they entrusted with a financial power of attorney can oversee:
- All business operations and transactions
- Business banking and legal matters
- All payments to employees or vendors
Establishing a financial power of attorney is almost like establishing a guardian for the business. They can manage the short-term and long-term matters however the principal wishes.
A financial power of attorney protects both business and family
If business owners do not prepare for the future, they could leave their loved ones facing many legal and financial challenges. Giving someone they trust—as well as someone who knows and cares about the business—the power to protect the business can help secure the company's future. A power of attorney is also one tool that can help owners pass down their business to their children.
The financial power of attorney is only one element that business owners should include in their estate plans. However, the benefits it offers are significant.