Picking Your Team: The Use of Voting Committees in Estate Planning
As part of planning for the longevity of their business, owners have probably, at one point or another, considered who will continue their business after they retire or upon their death. This portion of succession planning may take time to implement and require intricate structuring to ensure the business' profitable operation. However, owners may not have considered who would continue to operate their business in the event they are suddenly unable to do so or in the interim period between their death and the implementation of their succession plan. The use of a Voting Committee in the estate and succession plan of an owner can reduce the risk of reduced profitability if something happens suddenly to an owner.
What Is a Voting Committee?
No matter the structure of a business, it is likely that an owner has an informal Voting Committee already in place without realizing it. A Voting Committee generally consists of individuals who assist the owner with the management of the business. These individuals could be key employees, an accountant and/ or attorney, and if it is a family operated business, a spouse, child or other relative of the owner. Individuals chosen to serve on the Voting Committee depend on the complexity of the business, who is involved in its management, and at what point in the succession planning process the Voting Committee is serving. The time frame a Voting Committee serves can be short term in the event of sudden death or incapacity, or long term.
During the Life of the Owner
It is an uneasy thought that an owner may not be able to effectively operate the daily management of his or her business. However, as the COVID-19 pandemic of 2020 demonstrated, situations change very quickly. Many individuals, including business owners, found themselves hospitalized or forced to quarantine at home, which emphasizes how suddenly an owner may not be able to traditionally manage his or her business.
In order to plan for such a situation, Voting Committee language can be included in a Power of Attorney. Will or Revocable Trust Agreement to advise an Agent, Personal Representative or Trustee of the individuals they should or must seek advice from for business matters. In either event, the Agent or Trustee may not be familiar with the daily operation of the business and appointing a Voting Committee becomes crucial for the continuation of the business.
After the Death of the Owner as Part of Succession Planning
When considering succession planning, an owner decides who will own and manage his or her business upon his or her death. However, a succession plan involving a sale may take months to come to fruition. As such, if the Will and/or Revocable Trust Agreement of the owner includes a Voting Committee, it could continue the daily management of the business until the succession plan is in place. If an owner is using a Voting Committee in the long term, there is value in utilizing a Revocable Trust Agreement as it benefits those not involved in the daily operation of the business. In addition, other advisers are appointed beside family members to ensure the business continues after the death of the owner.
The inclusion of Voting Committee language in estate and succession planning documents is a simple way to ensure a business' continuation in the event of the incapacity or death of an owner. It can be used to supplement a business' succession plan or act as a temporary solution. For more information on the inclusion of Voting Committee language in your estate or succession planning documents, please contact on attorney in the Estates & Trusts Practice Group at MacDonald Ilig at 814/870-7600 or email info@mijb.com.
Article featured in the Manufacturer and Business Associations' January 2021 Business Magazine
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