A durable power of attorney for finances — or financial power of attorney — is a simple, inexpensive, and reliable way to arrange for someone to manage your finances if you become incapacitated (unable to make decisions for yourself). 

A financial power of attorney is a good document to make for yourself, but it can also be a great blessing for your family. If you become unable to decide for yourself and you haven’t prepared a durable power of attorney, a court proceeding is probably inescapable. Your spouse, closest relatives, or companion will have to ask a court for authority over at least some of your financial affairs. 

When a Financial Power of Attorney Takes Effect

A financial power of attorney can be drafted so that it goes into effect as soon as you sign it. (Many spouses have active financial powers of attorney for each other in case something happens to one of them — or for when one spouse is out of town.) You should specify that you want your power of attorney to be “durable.” If you don’t, in most states, it will automatically end if you later become incapacitated. 

Or, you can specify that the power of attorney does not go into effect unless a doctor certifies that you have become incapacitated. This is called a “springing” durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect. Again, you must specify that you want your power of attorney to be “durable.” If you don’t, in this case, your document will never take effect at all. 

Your Agent’s Job

When you create and sign a durable power of attorney, you give another person legal authority to act on your behalf. This person is called your agent or, in some states, your attorney-in-fact. 

Commonly, people give their agent broad power to handle all of their finances. But you can give your agent as much or as little power as you wish. You may want to give your agent authority to do some or all of the following: 

• use your assets to pay your everyday expenses and those of your family
• buy, sell, maintain, pay taxes on, and mortgage real estate and other property
• collect Social Security, Medicare, or other government benefits
• invest your money in stocks, bonds, and mutual funds
• handle transactions with banks and other financial institutions
• buy and sell insurance policies and annuities for you
• file and pay your taxes
• operate your small business
• claim property you inherit or are otherwise entitled to
• transfer property to a trust you’ve already created
• hire someone to represent you in court, and
• manage your retirement accounts.

The agent is required to act in your best interests, maintain accurate records, keep your property separate from his or hers, and avoid conflicts of interest. 

Making a Financial Power of Attorney

To create a legally valid durable power of attorney, all you need to do is properly complete and sign a fill-in-the-blanks form that’s a few pages long. Some states have their own forms, but it’s not mandatory that you use them. 

Some banks and brokerage companies have their own durable power of attorney forms. If you want your agent to have an easier time with these institutions, you may need to prepare two (or more) durable powers of attorney: your own form and forms provided by the institutions with which you do business. 

You must sign the document in front of a notary public. In some states, witnesses must also watch you sign. If your agent will have authority to deal with your real estate, you must put a copy of the document on file at the local land records office. (In two states, North and South Carolina, you must record your power of attorney at the land records office for it to be durable.)

When a Financial Power of Attorney Ends

Your durable power of attorney automatically ends at your death. That means that you can’t give your agent authority to handle things after your death, such as paying your debts, making funeral or burial arrangements, or transferring your property to the people who inherit it. If you want your agent to have authority to wind up your affairs after your death, use a will to name that person as your executor. 

Your durable power of attorney also ends if: 

• You revoke it. As long as you are mentally competent, you can revoke a durable power of attorney at any time.
• You get a divorce. In a handful of states, if your spouse is your agent and you divorce, your ex-spouse’s authority is automatically terminated. In other states, if you want to end your ex-spouse’s authority, you have to revoke your existing power of attorney. In any case, it’s wise to make a new document as soon as you file for divorce.
• A court invalidates your document. It’s rare, but a court may declare your document invalid if it concludes that you were not mentally competent when you signed it, or that you were the victim of fraud or undue influence.
• No agent is available. To avoid this problem, you can name an alternate agent in your document.

After you’ve gone to the trouble of writing down your wishes for medical treatment in a living will or advance directive, you may be concerned about what would happen if a doctor or hospital didn’t want to follow your instructions. 

To put your mind at ease, know that health care providers are generally required to comply with the wishes you set out in your health care documents — and to honor your health care agent’s authority as long as the agent’s directions are a reasonable interpretation of your wishes. 

In some situations, however, a health care provider is permitted to reject a medical decision made by you or your agent. This may be true if: 

• the decision goes against the conscience of the individual health care provider
• the decision goes against a policy of a health care institution that is based on reasons of conscience, or
• the decision would lead to medically ineffective health care or health care that violates generally accepted health care standards applied by the health care provider or institution.

But this doesn’t mean that your health care instructions can be ignored. A health care provider who refuses to comply with your wishes or the directions of your health care agent must promptly inform you or your agent. And if you or your agent wishes, the provider must immediately take steps to transfer you to another provider or institution that will honor your directive. In some states, a health care provider who intentionally violates these rules may be legally liable for damages.

If you’re like most people, you aren’t eager to spend time thinking about what would happen if you became unable to direct your own medical care because of illness, an accident, or advanced age. However, if you don’t do at least a little bit of planning — writing down your wishes about the kinds of treatment you do or don’t want to receive and naming someone you trust to oversee your care — these important matters could wind up in the hands of estranged family members, doctors, or sometimes even judges, who may know very little about what you would prefer. 

Types of Health Care Documents

There are two basic documents that allow you to set out your wishes for medical care: a living will and a durable power of attorney for health care. It’s wise to prepare both. In some states, the living will and the power of attorney are combined into a single form — often called an advance directive. (In fact, both of these documents are types of health care directives — that is, documents that let you specify your wishes for health care in the event that you become unable to speak for yourself.) 

Living Wills

First, you need a written statement that details the type of care you want (or don’t want) if you become incapacitated. This document is most often called a living will, though it may go by a different name in your state. A living will bears no relation to the conventional will or living trust used to leave property at death; it’s strictly a place to spell out your health care preferences. 

You can use your living will to say as much or as little as you wish about the kind of health care you want to receive.  

Powers of Attorney for Health Care

You’ll also want what’s usually called a durable power of attorney for health care. In this document, you appoint someone you trust to be your health care agent (sometimes called an attorney-in-fact for health care, health care proxy, or surrogate) to make any necessary health care decisions for you and to see that doctors and other health care providers give you the type of care you wish to receive. 

Who Can Make Health Care Documents

You must legally be an adult (18 years old in most states) to make a valid document directing your health care. You must also be of sound mind — that is, able to understand what the document means, what it contains, and how it works. 

When Your Health Care Documents Take Effect

Your health care documents take effect if your doctor determines that you lack the ability — often called the “capacity” — to make your own health care decisions. Lacking capacity usually means that: 

• you can’t understand the nature and consequences of the health care choices that are available to you, and
• you are unable to communicate your own wishes for care, either orally, in writing, or through gestures.

Practically speaking, this means that if you are so ill or injured that you cannot express your health care wishes in any way, your documents will spring immediately into effect. If, however, there is some question about your ability to understand your treatment choices and communicate clearly, your doctor (with the input of your health care agent or close relatives) will decide whether it is time for your health care documents to become operative. 

In some states, it is possible to give your health care agent the authority to manage your medical care immediately. If your state allows this option, you may prefer to make an immediately effective document so that your agent can step in to act for you at any time, without the need to involve a doctor in the question of whether or not your health care document should take effect. 

Making your document effective immediately will not give your agent the authority to override what you want in terms of treatment; you will always be able to dictate your own medical care if you have the ability to do so. And even when you are no longer capable of making your own decisions, your health care agent must always act in your best interests and diligently try to follow any health care wishes you’ve expressed in your health care declaration or otherwise. 

When Your Health Care Documents End

Your written wishes for health care remain effective as long as you are alive, unless you specifically revoke your documents or a court steps in (but court involvement is very rare). Here are a few specifics about when your health care documents are no longer effective: 

• You revoke your document. You can change or revoke a health care document at any time. Just be sure that your health care providers and your agent know of your intention to cancel the document.
• A court invalidates your document. Most judges recognize that a court is normally not the right place to make health care decisions. However, if your health care is the subject of a dispute and someone questions the validity of your health care directives, the matter may end up before a judge.

  If someone doubts that you had the mental capacity to prepare a legally valid health care document, that person can ask a court to invalidate your document. Such lawsuits are rare, but they do sometimes occur. The burden of proving that you were not of sound mind when you made your document falls on the person who challenges its validity. (In other words, the law presumes that you had the mental capacity to make your health care documents.)

  It is also possible that a court could invalidate your document if it wasn’t properly completed — for example, if you did not meet your state’s requirements for having the document notarized or witnessed. If this happens, however, it is still likely that any wishes for health care you set out in the document will be followed — as long as they are clearly expressed and you were of sound mind when you wrote them down. In the famous case of Cruzan v. Director, Missouri Dept. of Health, 497 U.S. 261 (1990), the U.S. Supreme Court said that any strong evidence of someone’s wishes for care should be honored. Your directions won’t be ignored simply because of a technical error.

• A court revokes your agent’s authority. If, after your health care documents take effect, someone believes that your health care agent is not acting according to your wishes or in your best interests, the concerned person can go to court and ask for an investigation of your agent’s behavior. If a court finds that your agent is acting improperly and revokes his or her authority, the job will go first to an alternate agent you named in your document. If there is no available alternate — or if the court invalidates your entire document for one of the reasons discussed just above — a conservator or guardian will be appointed to make health care decisions for you.
• You get a divorce. Getting divorced has no effect on your written directions for health care (your health care declaration). But if you named your spouse as your health care agent, his or her authority is automatically revoked in a number of states. In that case, if you named an alternate agent, that person will take over.

  If you get a divorce before your health care directives take effect, it’s wise to eliminate confusion by starting over. Even if you named an alternate agent, make a new document and name someone else as your agent.

• After your death. Generally, your health care documents are no longer necessary when you die. In some states, however, your health care directives remain effective after your death for some very limited purposes. Your agent may be permitted to supervise the disposition of your body, including authorizing an autopsy or organ donation, unless you specifically withheld these powers when you made your health care documents.  

Most people want to leave as much of their money to their children, or other heirs, as possible — and want to avoid a big chunk of that money going to probate lawyers. That’s where living trusts come in — they can eliminate the need for probate and probate fees. 

Probate involves inventorying and appraising the property, paying debts and taxes, and distributing the remainder of the property according to the will. When you make a living trust, your surviving family members can transfer your property quickly and easily, without probate. More of the property you leave goes to the people you want to inherit it. 

A basic living trust allows property to avoid probate and to quickly and efficiently pass to the beneficiaries you name, without the hassles and expense of probate court proceedings. A married couple can use one basic living trust to handle both co-owned property and separate property. 

Creating a Trust

To create a basic living trust, you make a document called a declaration of trust, which is similar to a will. You name yourself as trustee — the person in charge of the trust property. If you and your spouse create a trust together, you will be co-trustees. 

Then you transfer ownership of some or all of your property to yourself in your capacity as trustee. For example, you might sign a deed transferring your house from yourself to yourself “as trustee of the Jane Smith Revocable Living Trust dated July 12, 2010.” Because you’re the trustee, you don’t give up any control over the property you put in trust. 

In the declaration of trust document, you name the people or organizations you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time. 

When you make a living trust, you should also make a back-up will. Doing so will ensure that any property not transfered to the trust will go to the people or organizations you want to receive it. If you don’t make a will, any property not included in your trust will be distributed according to the laws of your state — usually to the nearest relatives. 

After You Die

When you die, the person you named in the trust document to take over — called the successor trustee — transfers ownership of trust property to the people you want to get it. In most cases, the successor trustee can handle the whole thing in a few weeks with some simple paperwork. No probate court proceedings are required. 

Do You Need a Lawyer to Create a Trust?

Making a living trust takes about the same amount of time and is only a little more complicated than making a will. If your circumstances aren’t complicated and you are willing to invest a few hours of your time using an estate planning book or software, you may end up with a better result than you would achieve with many lawyers. 

To create your own living trust, get Denis Clifford’s Make Your Own Living Trust (Nolo). This book and CDROM contains all the information and forms you’ll need to create a living trust. Or make your own living trust online with Nolo’s Online Living Trust. 

Most of us have heard that it’s wise to avoid probate court, but we don’t necessarily know why. In a nutshell, there are two big problems with probate: 

• It usually ties up property for months, sometimes even a year.
• It’s expensive. Attorney and court fees can take up to 5% of an estate’s value.

The Probate Process

Most of what happens during probate is essentially clerical. In the vast majority of cases there’s no conflict, no contesting parties, none of the usual reasons for court proceedings. Probate rarely calls for legal research, drafting, or a lawyer’s adversarial skills. 

The probate attorney, or the attorney’s secretary, fills in a small mountain of forms and keeps track of filing deadlines and other procedural technicalities. In some states, the attorney makes a few routine court appearances; in others, the whole procedure is handled by mail. 

Probate Fees

For their services, both the lawyer and your executor will be entitled to fees from your estate. 

Executor fees. It’s common for the executor to waive the fee, especially if he or she inherits a substantial amount of your property. 

Attorneys’ fees. In many states, probate fees are what a court approves as “reasonable.” In a few states, the fees are based on a percentage of the estate subject to probate. Either way, a probate attorney’s fees for a “routine” estate with a gross value of $400,000 (these days, this may be little more than a home, some savings and a car) can easily amount to $20,000 or more. 

Other probate costs. In addition, there are court costs, appraiser’s fees, and sometimes other expenses. 

Reducing Probate Fees

One way to reduce probate fees is for your executor to handle the probate proceedings without an attorney (“in pro per” or “pro se”). But as a practical matter, that’s tough in most places. 

Use self-help books. In California, a good self-help book is available, How to Probate an Estate in California (Nolo), by Julia Nissley. Wisconsin and a few other states have established pro per procedures. In other states, you’re unlikely to find comprehensive published materials or other help that make probate easily accessible to nonlawyers. 

Use websites or practical guides to help. Without help, learning one’s way through the morass of probate laws is likely to be difficult, but not impossible. Some counties provide tips for non-lawyer executors on their websites. Or, your executor can get forms and instructions from an attorneys’ practice guide. These books are usually available at public law libraries, and many people have successfully used them. 

Hire an attorney for less than the usual fees. You can also try to get an attorney to agree that he or she will do your probate for less than the usual fees. You cannot, however, legally bind an attorney to such an arrangement. In fact, you don’t have the power to select the attorney at all — the law gives this authority to your executor.

 Avoiding Probate

Given all this, it generally makes more sense to see if you can avoid probate altogether. At the very least, consider reducing the amount of property that will be subject to probate — this will reduce fees and ensure that your beneficiaries get some of their inheritance faster.

 For comprehensive treatment of methods to avoid probate, get 8 Ways to Avoid Probate (Nolo), by Mary Randolph, J.D.

© 2010 Nolo

Each year, some 700,000 U.S. businesses change ownership. Most are small and mid-sized businesses, like retail stores, beauty salons, quick-print shops, restaurants, tax preparation services, landscapers, electrical contracting firms, and modest manufacturing operations. If you’re thinking about buying or selling a business and want to get the best deal possible, expect to do a lot of planning and preparation.

Selling a Business

No matter what kind of business you own — a professional services company, a neighborhood bagel shop, or a home-based website that sells imported garden tools — there’s likely to be an interested buyer or two out there (assuming the price is right). But finding the right buyer and selling the business on favorable terms will require both planning and hard work.

Your first step is considering whether you’re ready to sell. Other steps will include understanding the sales process, preparing your company for sale, setting a price, seeking potential buyers, negotiating and preparing a sales agreement and other documents, and closing the deal. For more information, see Selling or Closing a Business.

Buying a Business

If you’re planning to buy a business, you also have many factors to consider. These include whether owning a business is right for you or for your lifestyle, what the potential for success in the field you’ve chosen is, and the risks involved. Owning a business can mean that you have signed on for longer hours and more worries than you’ve ever experienced as a hired hand — but if you succeed, the financial and personal rewards are yours to savor. And of course, if you own your own business, no one can fire you.

Other things to consider include whether to buy a franchise or an independent business, how to find a business for sale, how to know whether the asking price is reasonable, and how to research the business’s history and finances (what lawyers call doing “due diligence”).

For more information, see Buying a Business.

Enjoy!

Whether you’re selling your long-held business or buying a new one, enjoy this next, fresh phase of your life! 

Thinking to start your own business? You’re not alone. Every year, thousands of Americans catch the entrepreneurial spirit, launching small businesses to sell their products or services. Some businesses thrive; many fail. The more you know about starting a business, the more power you have to form an organization that develops into a lasting source of income and satisfaction. For help with the beginning stages of operating a business, the following checklist is a great place to start.

Evaluate and Develop Your Business Idea
1. Determine if the type of business suits you.

2. Use a break-even analysis to determine if your idea can make money.

3. Write a business plan, including a profit/loss forecast and a cash flow analysis.

4. Find sources of start-up financing.

5. Set up a basic marketing plan.

Decide on a Legal Structure for Your Business
6. Identify the number of owners of your business.

7. Decide how much protection from personal liability you’ll need, which depends on your business’s risks.

8. Decide how you’d like the business to be taxed.

9. Consider whether your business would benefit from being able to sell stock.

10. Research the various types of ownership structures:

Sole proprietorship
Partnership
LLC
C Corporation
S Corporation

11. Get more in-depth information from a self-help resource or a lawyer, if necessary, before you settle on a structure.

Choose a Name for Your Business
12. Think of several business names that might suit your company and its products or services.

13. If you will do business online, check if your proposed business names are available as domain names.

14. Check with your county clerk’s office to see whether your proposed names are on the list of fictitious or assumed business names in your county.

15. For corporations and LLCs: check the availability of your proposed names with the Secretary of State or other corporate filing office.

16. Do a federal or state trademark search of the proposed names still on your list. If a proposed name is being used as a trademark, eliminate it if your use of the name would confuse customers or if the name is already famous.

17. Choose between the proposed names that are still on your list.

Register Your Business Name
18. Register your business name with your county clerk as a fictitious or assumed business name, if necessary.

19. Register your business name as a federal or state trademark if you’ll do business regionally or nationally and will use your business name to identify a product or service.

20. Register your business name as a domain name if you’ll use the name as a Web address too.

Prepare Organizational Paperwork
21. Partnership:

Partnership agreement
Buyout agreement (also known as a buy-sell agreement)
22. LLC:

Articles of organization
Operating agreement
Buyout agreement (also known as a buy-sell agreement)
23. C Corporations:

Pre-incorporation agreement
Articles of incorporation
Corporate bylaws
Buyout agreement (also known as a buy-sell agreement or stock agreement)
24. S Corporations:

Articles of incorporation
Corporate bylaws
Buyout agreement (also known as a buy-sell agreement or stock agreement)
File IRS Form 2553, Election by a Small Business Corporation
Find a Business Location
25. Identify the features and fixtures your business will need.

26. Determine how much rent you can afford.

27. Decide what neighborhood would be best for your business and find out what the average rents are in those neighborhoods.

28. Make sure any space you’re considering is or can be properly zoned for your business. (If working from home, make sure your business activities won’t violate any zoning restrictions on home offices.)

29. Before signing a commercial lease, examine it carefully and negotiate the best deal.

File for Licenses and Permits
30. Obtain a federal employment identification number by filing IRS Form SS-4 (unless you are a sole proprietorship or single-member limited liability company without employees).

31. Obtain a seller’s permit from your state if you will sell retail goods.

32. Obtain state licenses, such as specialized vocation-related licenses or environmental permits, if necessary.

33. Obtain a local tax registration certificate, a.k.a. business license.

34. Obtain local permits, if required, such as a conditional use permit or zoning variance.

Obtain Insurance
35. Determine what business property requires coverage.

36. Contact an insurance agent or broker to answer questions and give you policy quotes.

37. Obtain liability insurance on vehicles used in your business, including personal cars of employees used for business.

38. Obtain liability insurance for your premises if customers or clients will be visiting.

39. Obtain product liability insurance if you will manufacture hazardous products.

40. If you will be working from your home, make sure your homeowner’s insurance covers damage to or theft of your business assets as well as liability for business-related injuries.

41. Consider health & disability insurance for yourself and your employees.

Set Up Your Books
42. Decide whether to use the cash or accrual system of accounting.

43. Choose a fiscal year if your natural business cycle does not follow the calendar year (if your business qualifies).

44. Set up a recordkeeping system for all payments to and from your business.

45. Consider hiring a bookkeeper or accountant to help you get set up.

46. Purchase Quicken Home and Business (Intuit), QuickBooks (Intuit) or similar small business accounting software.

Set Up Tax Reporting
47. Familiarize yourself with the general tax scheme for your business structure. (See Tax Savvy for Small Business, by attorney Frederick Daily.)

48. Familiarize yourself with common business deductions and depreciation. (See Deduct It! Lower Your Small Business Taxes, by attorney Stephen Fishman.)

49. Obtain IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business.

50. Obtain the IRS’s Tax Calendar for Small Businesses.

As you can see, starting a business involves making quite a few initial decisions and getting policies and paperwork in place. For more information about and help with starting a business, consult the following Nolo resources: Legal Guide for Starting and Running a Small Business, by attorney Fred Steingold; Wow! I’m in Business, by attorneys Richard Stim and Lisa Guerin; or Quicken Legal Business Pro (software).

© 2010 Nolo