Coach’s Corner: âDie With Your Boots Onâ Is Not a Succession Plan
By Ed Poll, Esq., principal of LawBiz® Management
The simple fact is that a lawyer who is a sole practitioner owns a family business â the law practice. And studies regularly document that small business owners do not plan well for the future of their businesses. A study several years ago by the Family Firm Institute and MassMutual Financial showed that fewer than half of small business owners expecting to retire soon had selected a successor, almost one-third had no plans to ever retire, and an equally large percentage had no estate plan beyond a simple will.*
As lawyers near retirement age, there are conflicting emotions between wanting to move on and wondering whether they should stay in practice. This typically leads them to one of four choices:
- Close the practice. Traditionally, this is the approach most lawyers chose to follow when death did not make the choice for them. Closing a practice requires winding up all financial matters before the closure is announced. For example, some clients, once they know the lawyer is leaving, will make it difficult if not impossible to collect on their overdue accounts.
- Merge the practice. Many lawyers did this before the Rules of Professional Conduct were modified to permit a complete practice sale (as of 1991) or a partial sale (as of 2002). Today, no more than four states are exceptions to the practice sale rule. Still, if a sale is not in the offing, a merger with a buy-sell agreement or a key man insurance policy in place may be a good alternative for the lawyer who wants to slow down or retire at a known future date.
- Sell the practice. This is the cleanest option but it has many ramifications. The purchaser must be a reputable lawyer with adequate financial reserves, good collateral and a viable law practice, and must be willing to allow a reasonable time to transition the practice.
- âDie with the boots on.â This is the approach too many lawyers still take, but it is fraught with danger. Hereâs why.