Sole Owners and Succession

Are you the sole owner of your company?  If so, do you have a succession plan in place
for your business?  You do?  That’s great.  Does it pass muster with your bank?  If your
brow is furrowed and a cartoon question mark is floating above your head, read on.
Several years ago, we were contacted by two families who’d each lost a loved one
who’d been the sole owner of a company.  One owner didn’t have a succession or
estate plan at all, while the other had a trust.  Even with a trust, it took some time to
appoint the successor trustee, all the while no one could sign company checks in order
to pay the bills that continued to roll in.  The business whose owner didn’t have an
estate plan went under because the probate process took so long and none of the
family members were authorized to take over the bank accounts.

One might think a financial power of attorney would suffice for naming someone to
come in after your death to access the bank accounts, in the absence of anything else.
One would be wrong.  Most banks will not accept a power of attorney form, especially
because most powers of attorney expire when you do.  They’re only effective if you’re
incapacitated and can’t make decisions for yourself. Most banks similarly won’t accept a
successor named in a company owner agreement, like an operating agreement or
shareholder agreement.

What will banks accept? You’ll want to check with your bank for their policies, but it’s a
pretty safe bet that they will accept a revocable or living trust. Mechanically, how does
that work? Your trust holds 100% of your interest in your company while you, the
human, are appointed Manager (in the case of an LLC) or President/Officer (in the case
of a corporation). That way, when you die, your interest in the company is one of the
assets held by your trust and the trust document dictates who takes over.
All that said, this requirement is largely the function of a bank’s internal policies, so be
sure to check with your banker to find out how you can properly appoint a successor in
the event of your disability or death.