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Contingency Plan for a Sole Business Owner Dropping Dead

Partners' Network Blog

Contingency Plan for a Sole Business Owner Dropping Dead

My last blog discussed the consequences of a sole business owner dropping dead or having a sudden disability without a plan.  Here are some illustrative points that can be used to get you started toward a plan.  The goal is to prepare so in event of a sudden death or disability someone can quickly assume control of the business and continue operations.

First steps

  • Place ownership in a Living Trust.
    • The owner would be trustee as long as he is able to perform all duties.  Death is easily defined.  Disability would need to be defined in the trust agreement
    • Someone of owner’s choosing would be selected as the alternate trustee who would only become elevated to trustee upon owner’s death or the “disability”
    • An alternative to the living trust for disability is a specific durable power of attorney.  However, this would not be effective for death
    • Another alternative, also less effective, is to elect another officer, e.g. assistant secretary, with bank signatory power as a fall back
    • Either as part of the living trust or in a separate agreement of instructions, the owner would spell out his wishes, as suggestions, of how he wants the business to be operated.  It would be suggestions since things change and the trustee (or person acting under the power of attorney) should not be bound by what he writes in the agreement

Critical decisions

  • The trustee (as I will refer to the person operating the business) as “owner” and the person controlling the trust would immediately arrange to become a signatory at the bank accounts (if not previously arranged)
  • Various key people that the owner will list will be consulted in hiring and firing, scheduling staff, billing customers, customer relationship contact and other issues that will be identified by the owner in meetings with the alternate trustee.  These meetings should take place at six month intervals BEFORE any disability or death
  • Payroll payments would have to be made as scheduled and this would be one of the early actions, as would the continued servicing of customers or clients and meeting with customer contact people to assure them of the continuity of the business
  • Cash-flow distributions to the owner’s family will be made to provide for any care he needs.  This would be done in conjunction with his Health Care Proxy person
  • If it appears, the disability will be prolonged, or if there is a death, a decision will be made whether to sell or continue the business, and whether someone should be hired to handle day to day operations, in effect to become a general manager or chief operating officer
  • Long term decisions such as lease renewals, pricing changes, or hiring permanent management personnel, with exception of a general manager, should be deferred as much as possible
  • Any plan should be in writing and discussed with the Company’s banker (if large lines of credit exist) and any other “interested” party
  • Compensation should be established for the trustee based on a fixed amount for oversight and responsibility and a payment arrangement based on time, value creation or staff working on the Company’s activities.  Additionally, the trustee should receive a payment for assisting in the sale of the Company
  • Communications with family members will need to be kept open and the existence of this arrangement should be told to them
  • Arrangements to sell the business should start after the operations are stabilized.
    • Beforehand, the owner would need to identify major competitors and others in the industry that might be potential buyers
    • Trustee will need to engage a professional to prepare a “book” and then initiate contact with potential buyers starting with the companies identified by owner
    • If these companies are not practical purchasers, or if assistance is needed, then a business broker or an investment banker should be engaged


  • For long-range disaster planning, owner should assemble a board of directors or advisors
  • Complete instructions of operating the company and selling it with all the backup a representative would need to know should be written out and kept in an easy to access location if needed
  • Included in the instructions would be documentation of passwords, processes, procedures, comments about individual employees and customers and customer contact people, and a list of what owner does in a typical day, or week
  • If the business’ ownership is placed in a living trust, then owner’s will will not be operative with respect to the business, or anything else in the trust
  • Owner’s primary concern should be the continuation of the business if he is disabled
  • A second concern will be maximizing the value for himself if he is permanently disabled or for his family if he dies, or reducing winding down costs as much as possible
  • It is suggested that owner consider life insurance as a method of providing for wealth transfer to his family [independent of the business] and to assure bankers of the repayment of outstanding loans
  • A life insurance trust should be set up as the owner of the policy with the bank as a beneficiary to the extent there is outstanding debt.  The mechanics of this will need to be worked out to consider estate and income taxes, especially with the repayment of the bank loan


  • Reality has to be recognized and that is the precarious nature of life
  • A contingency plan that can be implemented almost immediately under the worse type of conditions needs to be established for both the people involved and the business
  • The costs of setting up the plan are an investment you hope will be wasted with God’s grace, but that will provide assurance to key people, customers, vendors, lenders and family, and also to yourself should you become disabled

Use this outline as a starting point to establish a plan that would work for you.  You give up no control as long as you are ok.  A major factor in long-range planning is to reduce confusion and to assure continuity and cash flow if the owner becomes disabled and maximizing value if he dies.

Get it done!

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