Incapacity Planning for Texas Business Owners: Powers of Attorney, Guardianship Alternatives, and the Company Agreement
Updated: 4 hours ago
By Trenton Roberts and Jay Stigers
Circular 230 / general information notice. This article is general information only. It is not tax, legal, or accounting advice. Reading it does not create an attorney-client relationship. Tax results depend on your facts and on law that can change. Consult your own attorney and CPA before taking any action. This article was not written to be used, and cannot be used, to avoid tax penalties.
Most estate plans are built around death. Incapacity planning gets less attention, and for a business owner it may matter more. A will does nothing while the owner is alive. If an owner has a stroke, a serious accident, or a slow cognitive decline, someone still has to sign payroll, renew the line of credit, vote the membership interest, and answer the landlord. Without the right documents, the default answer in Texas is a guardianship, which is a court proceeding the family has to start and then live inside for as long as the incapacity lasts.
We have covered estate planning for business owners after the One Big Beautiful Bill Act and the Texas rules on community property and probate. This piece is about the years before any of that applies.
What happens with no plan
A Texas court cannot appoint a guardian casually. Under Section 1101.101 of the Estates Code, the court must find by clear and convincing evidence that the proposed ward is incapacitated, that a guardian is in the ward's interest, and that alternatives to guardianship and available supports and services have been considered and found not feasible. That last requirement is the legislature telling courts and families that guardianship should be the last resort.
When a guardian of the estate is appointed, the process is supervised. The guardian files an inventory, and Section 1163.001 requires an annual account that lists claims, receipts, disbursements, and the condition of the property being administered. For a person with a house and a brokerage account, that is manageable. For an owner with an operating company, it means a court process layered over business decisions that usually need to happen in days.
The good news is that most of this is avoidable with documents an owner can sign today.
The statutory durable power of attorney
Chapter 751 of the Estates Code governs durable powers of attorney in Texas, and Chapter 752 supplies a statutory form. Under Section 751.0021, an instrument qualifies as a durable power of attorney if it designates an agent and grants authority, is signed by the principal, contains language making the power survive the principal's disability or incapacity, and is acknowledged before an officer authorized to take acknowledgments, usually a notary.
Two drafting choices come up immediately.
The first is when the power takes effect. A power can be effective immediately or can spring into effect on incapacity. Section 751.00201 says that unless the document defines it otherwise, a principal is considered incapacitated for this purpose if a physician certifies in writing, after the document is signed, that based on an examination the principal is mentally incapable of managing financial affairs. A springing power feels safer to many clients, but it builds a delay into the moment the family most needs speed. Some owners prefer an immediately effective power held by the lawyer or a trusted person until it is needed.
The second is what the agent may do. A general grant covers the categories in the statutory form, but Section 751.031(b) lists actions an agent may take only if the power of attorney expressly grants the authority: creating, amending, revoking, or terminating a living trust; making gifts; creating or changing rights of survivorship; creating or changing a beneficiary designation; and delegating authority. Those are often the exact powers a family needs to finish an owner's estate plan or fund a revocable trust. If they are not written in, the agent does not have them.
Gifting is its own topic. Under Section 751.032, a general grant of gift authority limits the agent to gifts per donee up to the federal annual exclusion amount under Section 2503(b) of the Internal Revenue Code, or twice that amount with a spouse's consent to split gifts, unless the document says otherwise. For 2026 the annual exclusion is $19,000 per recipient. An owner who wants an agent to continue a larger transfer program, such as gifts of nonvoting units to a family trust, has to say so in the document, with guidance on the owner's objectives.
Getting third parties to accept the power
A power of attorney is only useful if a bank, a title company, or a counterparty will act on it. Texas addressed this in 2017. Under Section 751.201, a person presented with a durable power of attorney must accept it, or within 10 business days request an agent's certification or an opinion of counsel, and then accept within seven business days after receiving it, unless a statutory ground for refusal applies. Section 751.212 lets the principal or agent sue to compel acceptance and recover reasonable attorney's fees.
The grounds for refusal in Section 751.206 include one that matters directly to business owners. A person may refuse if it believes in good faith that the requested act would violate the terms of a business entity's governing documents or an agreement affecting the entity. In plain terms, if the company agreement does not let an agent act for a member, the power of attorney may not open that door.
Section 751.151 adds a recording step for real estate. A durable power of attorney used for a real property transaction requiring a recorded instrument, such as a deed, deed of trust, or lease memorandum, must be recorded in the county where the property is located not later than the 30th day after the instrument is filed.
Incapacity planning and the company agreement
The Texas Business Organizations Code speaks directly to what happens to a membership interest on a member's death or divorce. Under Section 101.1115, the surviving spouse, heirs, or personal representative become assignees of the interest, not members. Incapacity is something the company agreement has to handle, and many agreements say little or nothing about it.
When we review a company agreement for incapacity planning, we look at five things:
Whether an agent under a durable power of attorney, or a guardian, may exercise a member's voting and consent rights, and on what proof.
Who becomes manager or officer if the owner who runs the company cannot. A single member LLC with the owner as sole manager and no successor named is the most fragile structure we see.
Whether incapacity triggers a buy-sell right, at what price, and with what definition of incapacity. A definition that requires a court finding will often be useless in practice.
Whether transfers to the owner's revocable trust are permitted without consent, so the family can move the interest into the trust if the owner did not.
Bank resolutions and signature cards, which often name only the owner. Updating the company's authorized signers is usually a one-page fix.
For a corporation, the same questions show up in the bylaws, any shareholders agreement, and the officer appointments. For a partnership, they show up in the partnership agreement and the general partner's own governing documents.
The revocable trust as an incapacity tool
Texas has a feature that surprises people moving here from other states. Under Section 112.051 of the Property Code, a settlor may revoke a trust unless the trust instrument expressly makes it irrevocable. Most Texas living trusts are revocable, and that flexibility is what makes them useful for incapacity planning.
An owner who funds a revocable trust with membership interests, real estate, and investment accounts can name a successor trustee who steps in if the owner becomes incapacitated, using the trust's own definition of incapacity. The successor trustee acts under the trust instrument rather than through an agency relationship, and many institutions are more comfortable with a trustee's authority than with a power of attorney. The trust works alongside a durable power of attorney, not instead of it. The power covers what was never put in the trust.
Health care documents and the designation of guardian
Business owners sometimes treat the health care documents as an afterthought. They should not, because a medical crisis is usually what starts an incapacity problem.
A medical power of attorney under Chapter 166 of the Health and Safety Code lets an agent make health care decisions when the attending physician certifies in writing that the principal is incompetent. Under Section 166.154, it is signed before two qualified witnesses or acknowledged before a notary. A directive to physicians addresses end-of-life treatment, and a HIPAA authorization lets the family get information from providers.
A designation of guardian in advance of need is a smaller document with real force. Under Section 1104.202 of the Estates Code, a person may designate who should serve as guardian of the person or estate if the person becomes incapacitated, and the court must appoint that person unless the court finds the person disqualified or unsuitable for the ward. The same declaration may disqualify a named person, and the court may not appoint someone disqualified that way. For a family with tension, that disqualification can be the most important line in the plan.
Parents have a parallel tool. Under Section 1104.053, the surviving parent of a minor may appoint, by will or by written declaration, a guardian of the person of the minor children in the event of the parent's death or incapacity. For parents of minor children, this is often the document that matters most. The declaration has formal requirements under Section 1104.152, including being written wholly in the parent's handwriting or attested by two witnesses who are at least 14 and not named as guardian.
Guardianship alternatives that do not involve a court
Texas law points families toward alternatives. Section 1101.101 requires the court to consider them before appointing a guardian, and the Estates Code includes several:
A durable power of attorney and a medical power of attorney, discussed above.
A revocable trust with a successor trustee.
A supported decision-making agreement under Chapter 1357, which lets an adult with a disability choose a supporter who helps the adult understand options and communicate decisions without making the decisions for the adult. For a family business, this can matter when an adult child with a disability holds or will inherit an interest.
Joint accounts and beneficiary designations, used carefully, because they can move assets in ways that undercut the estate plan.
A short checklist
Sign a durable power of attorney that expressly grants trust, gift, and beneficiary designation powers if you want the agent to have them.
Decide whether the power is immediately effective or springing, and if springing, define incapacity in the document.
Amend the company agreement to address an incapacitated member and name a successor manager.
Fund a revocable trust with business interests where the company agreement allows it.
Sign a medical power of attorney, a directive to physicians, a HIPAA authorization, and a designation of guardian, and if you have minor children, a declaration appointing their guardian.
Update bank resolutions and signature authority.
How we can help
We prepare incapacity documents together with the company agreement amendments, buy-sell terms, and trust funding that make those documents work for an operating business. We also coordinate with your CPA on gift and estate tax issues. For background on structuring the company itself, see our post on LLC operating agreements and partnership tax issues.
If you want to review your own documents, email info@robertsandwillie.com or call (469) 910-4017. Sending a message does not create an attorney-client relationship.
Disclaimer. This article is for general information only and is not tax, legal, or accounting advice. It does not create an attorney-client relationship. Tax law changes and depends on your specific facts. Do not act on this article without consulting your own attorney and CPA. This article is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or other applicable law. Attorney Advertising. Roberts & Willie, PLLC, Dallas, Texas; Trenton Roberts, responsible attorney.
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