There is much estate planning discussion in the family business arena about incompetency. The classic result is that most estate plans include provisions for a designated party, usually a child or sibling to assume responsibility and control of a family member’s, usually a parent’s, business affairs in the event of disability or incompetence.  The goal is to avoid a very formal and cumbersome guardianship that in addition to the ongoing administrative expenses opens the family’s private affairs up to public scrutiny. The mechanisms for administratively assuming responsibility outside of a formal guardianship is a Durable Power of Attorney or the successor trustee provisions of a Living Revocable Trust.  The typical qualifier for these two mechanisms is usually affidavits from two independent physicians that the parent is unable to attend to their customary business affairs.

These mechanisms and qualifiers are fine and dandy under ideal circumstances involving a cooperative parent who welcomes help and relief from the pressures of decision making. However, as a succession planner I unfortunately rarely encounter ideal situations.  Most of my elderly clients are strong willed and totally confident in their decision making ability. Most of the time these elderly living testimonies of the virtues of hard work and risk taking appear large-and-in-charge, on top of their game and totally “with it”. However, on “bad days” they can be easily confused, disoriented and unable to address relatively simple tasks such as use their cell phone or remember what you told them 10 minutes earlier.  When they are “with it” they are cooperative but when they are “out of it” they are impatient, obstinate, rebellious, disrespectful and suspicious of anyone, especially children, who try to tell them what to do or try to undermine their control. Ironically an advisor generally has more persuasive power over the parent than the family members who are genuinely concerned for their welfare and sacrificially attending to their need.

I classify individuals who are in the transition from having all their faculties to various levels of incompetency as marginally competent. The skepticism and paranoia of the marginally competent complicates, frustrates and befuddles family members who understand the vulnerability of their parents. The family members want to protect their parents from both conniving, self serving, opportunistic predators disguised as old friends, self serving family members, opportunistic business partners and overzealous charitable promoters who are drawn to the marginally competent like bees to a romantic flower.  Marginal competency typically creates a “no-win” dilemma for concerned family members. On one hand family members may evoke resistance, defiance and criticism from the parent and/or skepticism and resentment from other family members, partners or friends who from the best perspective may appraise the parent’s competency differently and from the worst perspective may have recognized that a nefarious window of opportunity is being closed.  This is also an administrative “no man’s land” because the parent could shut down any competency hearing because as luck would have it they were “with it” on the days of examination. 

None of us know what cards are in store for our family businesses so in my next blog, Dealing with Business Owner or Family Member Marginal Competency read about ways to deal with this issue.

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