Powers Clauses: Broad Powers Clause to Guide the Actions of the Fiduciaries; Special Powers Clause for Business Interests Owned by the Testator; Power over S Corporation Issues Clause (6 Pages)

3 Clauses To Address The Following Issues:
CLAUSE 1: Broad Powers Clause for the Fiduciaries of the Estate; Self-Dealing by a Fiduciary Prohibited
CLAUSE 2: Special Powers Clause Addressing Closely-Held Business Interest
CLAUSE 3: Instructions Regarding S Corporation Interests Held by the Testator

Every well-drafted Will includes a powers clause setting forth the various powers granted to the fiduciaries named in the Will. In some cases, this is a long clause setting forth multiple powers, in other cases it is a short clause incorporating by reference a state statutory provision granting specific powers not necessarily included in the statutory provision. It is recommended that a listing of powers clause be included in a Will, making certain that the fiduciaries have broad authority to manage the assets of the decedent’s estate. It is suggested that this is preferable to assuming (perhaps incorrectly) that a state statute is broad enough to permit the action the fiduciary desires to take. In this clause it is also a good idea to require that where there are multiple fiduciaries one or more of whom may also be a beneficiary of the estate, that such beneficiary may not use the listed powers to exercise discretion on his or her own behalf. This is intended to assure that a fiduciary exercising discretion for himself or herself will avoid accusations of “self-dealing” and will not be charged with having a general power of appointment over the assets in a trust. Such a provision is addressed in (Clause 1).

However, when a testator owns an interest in a business, particularly if the value of that business is a significant asset of the testator’s estate, there is a concern that a fiduciary may feel compelled to dispose of that business to satisfy fiduciary standards of diversification, prudent investor rules, etc. In many family business situations, the testator does not want the business interest sold simply to comply with notions of “proper fiduciary responsibility”.
Accordingly, to protect the fiduciary from its concerns about liability and to protect the family from having a desirable asset sold, a provision is included in the testator’s Will addressing the retention of the business interest and protecting the fiduciary from claims that the business interest was held in the estate contrary to typical notions of diversification, etc. Such a provision is (Clause 2). Note that this clause also allows the fiduciary to manage the business or to hire appropriate managers, as the fiduciary deems appropriate. While the clause below addresses a business interest held in corporate form, it can easily be revised to address a partnership or LLC form of business, as well.

Where the testator holds an interest in an S corporation, it may be advisable for the testator to include some specific instructions to the fiduciaries designed to preserve the viability of the S election, or, if necessary, to empower the fiduciary to terminate the S election. Such a provision is (Clause 3).

Author:
Steven G. Siegel is president of The Siegel Group, a Morristown, New Jersey - based national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. Mr. Siegel holds a BS from Georgetown University, a JD from Harvard Law School and an LLM in Taxation from New York University.
He is the author of several books, including: Planning for An Aging Population; Business Entities: Start to Finish; Taxation of Divorce and Separation; Income Taxation of Estates and Trusts, Preparing the Audit-Proof Federal Estate Tax Return, Putting It Together: Planning Estates for $5 million and Less, Family Business Succession Planning, Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally-Defective Grantor Trusts; The Federal Gift Tax: A Comprehensive Analysis; Charitable Remainder Trusts, Grantor Trust Planning: QPRTs, GRATs and SCINs, The Estate Planning Course, The Retirement Planning Course, Retirement Distributions: Estate and Tax Planning Strategies; The Estate Administration Course, Tax Strategies for Closely-Held Businesses, and Tort Litigation Settlements: Tax and Financial Issues.
Mr. Siegel has lectured extensively throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including National Law Foundation, AICPA, CCH, National Tax Institute, National Society of Accountants, and many others.  He has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.
The Siegel Group provides consulting services to accountants, attorneys, financial planners and life insurance professionals to assist them with the tax, estate and business planning and compliance issues confronting their clients. Based in Morristown, New Jersey, the Group has provided services throughout the United States. The Siegel Group does not sell any products. It is an entirely fee-based organization.
Contact the Siegel Group through its president, Steven G. Siegel, e-mail: [email protected].