Having recently advised clients in commercial transactions where one or more parties lacked legal capacity, we were reminded of the essential role of Durable General Powers of Attorney in an estate plan. Though none of us wants to think about ourselves or our older family members losing mental capacity, we have to accept that it does happen. When the family matriarch can no longer make sound business decisions she needs to rely on a substitute decision maker to manage her interests. Without advance planning to appoint an Agent under a power of attorney, the only solution may be to petition the local court to declare the matriarch incapacitated and appoint a person or a financial institution as guardian. That’s a time-consuming and potentially expensive process involving family doctors, lawyers and a court hearing. When the time comes to sell a business interest or real estate, the guardian will have to seek separate court approval, resulting in more delay and more expense.

A Durable General Power of Attorney (“DGPOA”) can in most cases, avoid that cost and delay. Under a DGPOA, a person (the “Principal”) appoints one or more other persons as “Agent” to exercise certain powers on behalf of the Principal relating to financial and business matters, all for the benefit of the Principal. Crucially, the DGPOA is effective after the Principal lacks legal capacity. If and when the Principal loses capacity or the willingness to conduct financial or business dealing, the Agent steps in to assist or make decisions for the Principal.

Every Dealer and every owner of corporate stock or other equity interests in a dealership entity should have a DGPOA. An Agent acting under a DGPOA has the discretionary authority to vote the stock to approve mergers and acquisitions, sell real estate and manage other dealership matters without court approval. By making an early decision about who should step in if necessary, the Principal executing a DGPOA saves valuable time and the very real costs of working through a guardianship later on.

In 2014, Pennsylvania enacted significant changes to the law governing Powers of Attorney which changes became effective January 1, 2015. We advise our auto dealer and other business clients on the inclusion of effective and flexible DGPOAs in their succession plans. We encourage clients to review existing documents and can assist in determining if revisions are needed.

Questions involving DGPOAs in particular or business succession planning in general may be directed to any member of McNees’ Auto Dealer Practice Group.