CASE STUDY 2: MR. PEARSON.
You represented Mr. Pearson and his now deceased wife several years ago in preparing
their estate plan. You know from past contacts with Mr. Pearson going back 20 years
that he always seemed quite knowledgeable in running his family business, Lorellei
Construction Co., which he owns with his brother Bill. You also know that he was
always very caring of his family and active in the community. Mr. Pearson is now 79
years old, widowed 6 years, and lives alone in his home of 37 years. He retired from
active management of his company. He has two married daughters and one disabled
single son who lives in a community group home. His daughter Diana is the only one
who lives close by.
Mr. Pearson’s daughter Diana called your office to make an appointment for her father to
review a contract (a buy-sell agreement) that Mr. Pearson’s brother asked him to sign.
She also says that her father wants to give her a power of attorney to manage his affairs if
he no longer can. She reports that her father’s health has been failing, and he leaves his
house only rarely. She regularly helps him with shopping, reminding him to pay bills,
cooking and housekeeping, although a paid housekeeper comes in twice a week, and he
receives meals-on-wheels daily. Her father still holds onto his check-book and insists
that he can manage and pay his own bills, even though he is forgetful now and then. But
the daughter notes that none of the bills would be paid unless she prepared the checks for
You meet with Mr. Pearson and his daughter Diana at your office. While he appears
well-groomed and dressed appropriately, he appears very frail, moves very slowly with
the help of a walker, and is not very talkative. He describes the purpose of the visit to,
“Take care of my things; make sure government doesn’t get it.”
You meet with Mr. Pearson alone for a portion of the meeting.
He asks you your name again, when you resume the conversation. He gets his
children’s names mixed up when asked about them, and says he’s not sure where
his son lives.
You ask him about his family construction business which is the subject of the
requested buy-sell agreement, and he says he doesn’t run it anymore; his brother
does. You also ask him where the unusual name of the company comes from
(Lorelei Construction) and he says he doesn’t remember, but he insists it was a
good business, worth millions of dollars. But, “My brother, got no sense. Loses
money. Not good.”
You ask if he knows the financial situation of the company right now. He doesn’t
respond. You read through the buy-sell agreement proposed by his brother and
ask Mr. Pearson a few questions about it. He shows considerable difficulty
understanding the contents of the contract.
You ask him if he understands what a power of attorney for financial affairs is?
Pearson - “So she can sign things for me.”
Lawyer - “She? You mean your daughter?” He nods yes. “You want your
daughter to handle your financial affairs?”
Pearson - “Yes… No… Not now. Later”
Lawyer – You mean when you no longer can do it yourself? He nods yes.
The Buy-Sell Agreement
The buy-sell contract drafted by his brother would give the brother a first option to
acquire his interest in their closely-held family company on very favorable terms. The
proposed agreement also goes a significant step further in vesting the entire company in
his brother upon Mr. Pearson’s death and forgiving several unspecified loans made by
Mr. Pearson to the company. The daughter expresses concern that her uncle is taking
advantage of her father’s diminished health in urging him to sign such a one-sided
agreement. She also says that the uncle runs the business alone now, but maintains some
contact with Mr. Pearson. Mr. Pearson says he trusts his brother.
With the daughter present again, the daughter brings up the subject of the durable power
of attorney again, saying to you, “Dad is having a harder and harder time making sure his
bills are paid. Don’t you think it’s time for me to take over handling that for him?
Besides his forgetfulness in paying bills, he’s giving money to his housekeeper that he
shouldn’t be giving. I think she’s taking money from him.” Mr. Pearson protests, saying,
“Tanya (the housekeeper) needed some help. That’s all.” But when you ask help for
what, he is not quite sure, “Her son... I don’t remember.”
When you return to the subject of a power of attorney, he affirms with a nod that he
wants Diana, who is sitting next to him, to be his agent. A few times during the interview
he changes the subject, asking you if you will stop the government from taking his
Does Mr. Pearson have capacity to execute the buy-sell agreement or a power of
Are there other steps you can take before deciding what to do?