“The time to repair the roof is when the sun is shining.” – JFK

To run a successful business, an owner must plan meticulously. In 2021, there were an estimated 32 million closely held businesses in the US. However, 61% of ‎them lacked a written succession plan. A company’s beating heart is often its owner, and without the owner at the helm, the ongoing success of the business ‎could be at risk.

Succession planning is not just about who controls the operation in your absence. Succession ‎planning can address taxes and training, as well as provide a viable exit strategy. ‎Without a succession plan, an owner’s death or incapacity could lead to the appointment of third parties to manage the business by a court; or worse, to the end of the business–the opposite of what many owners envision. In these ‎situations, one thing is certain: emotions will run high.

Planning for the day when you are no longer at the top of your game mentally or physically can be uncomfortable. But facing that discomfort now may save your firm, protect your legacy, and ensure ‎you have a say in what happens to your company and who will take your place at the helm. ‎

What is Incapacity?

Rarely does anyone expect to become incapacitated. Unless a person ‎has entered the beginning stages of an illness that will affect their mental capacity, it can be difficult to ‎appreciate why succession planning is crucial.

The most familiar type of mental incapacity or memory impairment is brought on by a disease that affects the memory, such as Dementia, Alzheimer’s, or Aphasia. This type of progressive condition may allow periods of clarity, even though the disease is on a path to permanent incapacity. ‎When people experience lapses in memory or rational thought, they often go to great lengths to hide their cognitive decline; and that “masking” behavior prevents one from starting to plan. By the time the need for a plan is recognized by others, it may be too late.

Mental incapacity doesn’t only refer to diseases that affect memory. For example, a person could be unconscious due to a car collision, or suffer a severe heart attack and become temporarily incapacitated. In both ‎cases, the individual cannot make decisions for themselves, let alone their business. ‎Without a plan, well-meaning friends, family, and employees are unable to act on behalf of the owner or the ‎business. A few weeks of missed or incorrect payroll, vendor payments, and/or business operations could create the real potential for company failure. In this situation, the owner could recover physically, only to face the ‎reality that the firm has lost too much productivity and revenue to survive. ‎

Guardianship and/or Conservatorship

So what happens if you lack a succession plan and become incapacitated?

Someone, such as a friend or family member, may petition the court to have a guardian and/or conservator appointed for you.

A guardianship provides protection for your physical health, placement, and well-being. For example, the guardian can accept or decline care for you, enroll you in benefits, access health information, and make other decisions necessary for your physical well-being.

A conservator controls your financial affairs. For example, the conservator can enter into contracts on your behalf, access your financial accounts, and step into your shoes to assist in running your business.

The court proceedings and required filings in a guardianship and/or conservatorship petition are complicated and require the assistance of an attorney. In guardianship cases and sometimes conservatorship cases, the court will appoint a court visitor. The court visitor is an unbiased third party tasked with determining whether your incapacity meets the criteria for a guardianship and/or conservatorship. To make this determination, the court visitor may conduct interviews with family, friends, co-workers, and medical providers to determine if one meets the criteria for a guardianship/conservatorship and whether the petitioned-for guardian and/or conservator is appropriate for the role.

For business owners who become incapacitated without a succession/backup plan, a conservatorship is likely to be necessary, and a professional conservator (as opposed to a family member or friend) will also likely be needed. Without proper advanced planning, the appointed conservator might not be the preferred choice of the business owner. Not only could the appointed conservator be a person the business owner did not consent to or select, but the conservator’s annual accountings would be filed with the court and become public record, thereby invading the privacy of one’s financial status.

Barring an emergency petition for temporary appointment of a guardian and/or conservator, the court process can also take many months to appoint a guardian and/or conservator.

But What if I Contest the Appointment of a Guardian and/or Conservator?

In the event you contest the petition seeking the appointment of a guardian and/or conservator, you have a right to be represented by an attorney selected by you or appointed by the court. Your attorney may object to the petition, but the process becomes even more complicated.

In Oregon and Washington, reasonable legal fees incurred by all parties with regard to the petition for appointment can be paid from the incapacitated person’s assets, if the court finds the parties’ action to be in furtherance of the incapacitated best interests … even if the incapacitated person objected to the appointment.

In addition, a judge can order a potentially incapacitated person to submit to a psychological exam that could last several hours and cost thousands of dollars. The psychologist will make a determination of mental capacity and file a report noting his or her determination with the court.

A contested protective proceeding is likely to become expensive. The added stress inevitably affects the person subjected to the petition, and can damage relationships with those who sought the appointment of a guardian or conservator.

But these burdens can be minimized and ideally avoided by taking action when you are still at the top of your game by effective succession and estate planning. You have ways to deal with the challenges of incapacity from a legal perspective. But that requires taking action when you have capacity.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.