Passing Along a Benefit, Not a Burden: Why Planning for Absence and Incapacity Is Indispensable for Business Owners

As a business owner, you have likely considered establishing an estate plan to ensure your

company’s continued success after your passing. However, comprehensive estate planning also

addresses what will happen if you become mentally incapacitated (unable to manage your

affairs) due to illness, injury, or cognitive decline, or if you need to be away from your business

for an extended period.

Why Incapacity Planning Matters

As a business owner, your responsibilities likely encompass the company’s day-to-day

operations and planning for its future growth and profitability. However, incapacity can strike

unexpectedly and create chaos in your business if you have no contingency plan in place. Also

consider what would happen if you were unable to participate in your business due to issues

unrelated to incapacity, such as an extended trip abroad or a medical diagnosis that requires

you to spend several months in treatment.

Without you at the helm, your business will need someone who not only has the business

knowledge and skill to step in for you but also the legal authority to make decisions, sign

contracts, access bank accounts, and manage payroll. If business operations grind to a halt

because you cannot be there, the impact could be costly and detrimental to your business’s

overall success. Your employees may struggle without clear direction, and your clients could

experience delays or lose trust, which could result in long-term financial damage. Neither your

loved ones nor your business partners can step in and act on your behalf without the proper

planning documents in place. Without a legally valid incapacity plan that is reflected within your

estate and business plans, your family or partners may be forced to petition the court to appoint

someone who can take charge in your stead. However, court involvement can be time-

consuming and expensive, and a judge may appoint someone you would not have chosen to

take control of your business and finances.

Key Components of an Incapacity Plan for Business Owners

It is important to carefully consider whom you would want in charge of the business’s day-to-day

operations in your absence. This individual should not only understand the business but should

also have the respect of your employees and the confidence to make decisions without your

guidance.

Durable Financial Power of Attorney

A durable power of attorney (DPOA) allows you to designate someone (called your agent or

attorney-in-fact) to handle your affairs if you are unable to do so. As a business owner, you may

benefit from two separate DPOAs: a general financial DPOA for your personal finances and an

expanded DPOA with provisions that are specific to your business and allow your agent to

manage your company, especially if you choose different people for these roles. If you choose

the same person to manage both your personal and business matters, a single DPOA may be

sufficient, but it must include detailed provisions granting your agent full authority to carry out

your business-related responsibilities. Without clearly defined powers, such as the ability to

access business bank accounts, manage payroll, make management decisions, or vote on your

behalf, your agent’s authority may not be recognized by banks, vendors, and clients, leaving

your business unable to operate when it matters most.

Medical Directives

A healthcare power of attorney allows you to select someone you trust (your healthcare agent or

proxy) to make decisions regarding your medical care if you cannot communicate such

decisions yourself.

For example, if you become severely ill and cannot run your business, having a named

healthcare agent ensures that decisions regarding your care can be made without delay, ideally

reducing the time you are away from your business. With this document, your agent will also be

empowered to quickly inform your key partners or leadership team of your condition and

prognosis, helping to prevent confusion and disruption to business operations.

In addition to your healthcare power of attorney, a Health Insurance Portability and

Accountability Act (HIPAA) release form allows you to name trusted individuals who can directly

access your medical information. While this document does not grant anyone the authority to

make medical decisions for you (as a healthcare power of attorney does), it ensures that key

people, such as your business partner or manager, can stay informed about your condition if

your health affects business operations or decision-making.

Revocable Living Trust

For many business owners, transferring ownership of their business interest to a revocable

living trust is the most seamless way to handle incapacity. A revocable living trust is a legal

arrangement that allows you to transfer ownership of assets, including your business interests,

to the trust while you are alive and in control. Typically, you name yourself as the initial trustee,

maintaining complete control of all trust assets, including the day-to-day management tied to

your business interest. You will also name a successor trustee in the trust agreement who can

immediately step in to manage trust assets if you become incapacitated or pass away. This

successor trustee can manage your business according to the instructions outlined in the trust

agreement and without requiring court approval to act. Overall, using a trust helps ensure a

seamless transition of management, protects your company from disruption, and keeps your

affairs private and out of the probate process.

Buy-Sell Agreement with an Incapacity Clause

If your business has partners or co-owners, it is advisable to create a buy-sell agreement that

outlines how your share of the business will be managed, valued, or transferred in the event of

your departure from the company, incapacity, or death. Including an incapacity clause in your

buy-sell agreement helps keep your business running smoothly and protects your loved ones

from being thrust into difficult or unfamiliar roles. It ensures that, if you become incapacitated,

your partners can continue operating the business without interruption, following a clear plan for

how your ownership interest will be handled. This language not only safeguards the company’s

stability but also provides financial security and clarity for your family during an already stressful

time. This clause should also define clear triggers for incapacity—such as certification by two

physicians—to avoid uncertainty or disputes.

Business Instruction Letter

A business instruction letter is typically a legally nonbinding standalone document, but it can be

extremely helpful and provide necessary insight. It gives practical guidance to help your chosen

agent, successor trustee, or interim decision-maker step smoothly into their role. While it carries

no legal authority on its own, it can support your formal estate planning documents by outlining

day-to-day operational details such as key vendor and client contacts, the roles and

responsibilities of essential employees, and instructions for securely accessing important digital

accounts or records.

If you have family members working in your business, you can also use this letter to explain

what will happen in your absence and who will take over, so no one will assume that they are in

charge simply because they are family. It is important to remember that, even if your family is

involved in your business, it does not mean they are the best choice to succeed you.

Your Business Deserves a Backup Plan

Your leadership skills may be one of your most valuable assets. Protecting your business from

the unknown is not just smart, it is part of your responsibility as an owner. Incapacity planning

ensures that your enterprise, employees, and family members are protected, regardless of what

happens. From establishing processes to manage your potential incapacity to helping you select

the right individual to run your business while you are away, we can support you in developing a

plan that will protect both your livelihood and your loved ones.