Most lawyers recognize that retirement is a stage that must be planned for carefully, but many fail to contemplate how equally important it is to consider the unthinkable: “What if I am disabled through injury or otherwise for a short or long period of time — what will happen to my clients and my practice?”
If you work at a large or medium-size firm, the likely answer is that a colleague will meet your clients’ requirements. However, if you practise at a small firm or are a sole practitioner and haven’t made prior arrangements, your clients’ urgent needs may hang in the balance.
What is succession planning?
Considering planning for succession — who will succeed you when you no longer can or are not wanting to do the work — will provide a seamless transition for clients and everyone else who deals with your practice, as well as minimize disruption to you and your family.
Succession planning is one of those proactive initiatives that many lawyers feel they simply don’t have time to undertake. The problem is, if you don’t make time now to address the issue, you may be hit with it head on in the not-too-distant future.
Why do it?
It is important to have a plan in place, both for unexpected absences and for when you want to leave your practice — either to pursue opportunities outside the law, or to enjoy your retirement.
Graeme Keirstead is the manager of Special Fund and Custodianships at the Law Society.
“Succession planning is estate planning for your law practice. First, you need to have in place a will for when you’re gone, and in this case a plan for retirement or career change and, secondly, you need to formalize practice coverage through a “winding up caretaker,” for when you’re incapable of looking after things yourself.”
Keirstead’s department frequently encounters practices where the lawyer is suddenly incapacitated, no plans have been made in advance by the lawyer for such circumstances and the Law Society is forced to seek a custodianship for the practice.
“I recently had to go into the Interior and haul out boxes of files from the crawl space under a lawyer’s residence. Among the surprises I’m sure the lawyer didn’t plan for were spider nests in the boxes. The custodians in our department have seen all kinds of things, including those that require rubber gloves. In many instances the entire custodianship could have been prevented with some planning by the lawyer.”
“A custodian isn’t necessarily the best outcome. A pre-chosen successor can serve a client’s ongoing needs,” said Keirstead, “while a custodian can’t do that. So there’s still the inconvenience for the client of having to find a new lawyer and perhaps some duplication of cost in bringing the new lawyer up to speed.”
Keep in mind, you owe ethical and professional obligations to your clients, and to not have a proper plan in place may put you at risk of an insurance claim.
Only 13% of sole practitioners have indicated on their trust reports that they have designated a winding up caretaker in the event of death or disability.
Keirstead advises that lawyers should consider “buddying up” so that they can act as each other’s winding up caretaker.
“Then you can look into insurance, so that in the event you need to act as the winding up caretaker, you will have funds to make the practice liquid enough to take over.”
Benefits of planning for lawyers, clients and the Law Society
According to Keirstead, the comparison between succession planning and estate planning can’t be overstated.
“If I pass away without a will, instead of my wishes going forward in relation to my assets and me controlling the security for my loved ones, it goes by statute, so there’s no tax planning advantages and I lose influence over the process. It’s the same for your practice, except that instead of the Estate Administration Act kicking in, it’s the Legal Profession Act. Then the Law Society has to apply to court to have a custodian appointed and, instead of leaving an asset for your estate, you’ve left a potential liability for surviving members of your family. The Act entitles the Law Society to seek costs for the expense of the custodianship against the member or the estate.”
“Beyond the lawyers themselves, and their families,” said Keirstead, “the ultimate beneficiaries of advance planning are the clients, who will have some certainty and continuity of care, and the members of the Law Society who will not see the costs of running the custodianship department rise.”
Getting or becoming a winding up caretaker
To assist you in planning ahead, the Law Society has published sample documents on the society’s website (lawsociety.bc.ca) for both the unincorporated and incorporated lawyer, including:
- Law Practice Coverage Agreement between lawyer, practice attorney/trustee and, if applicable, law corporation
- Power of Attorney granted by the lawyer and, if applicable, law corporation, to the practice attorney/trustee
- Will (relevant extracts) by the lawyer, appointing the practice attorney/trustee and, if applicable, giving that lawyer powers over your law corporation
- Gatekeeper Agreement between the lawyer and the gatekeeper
Establishing a plan
The following documents are also available on the website to help you establish a plan to retire your practice and prepare the necessary documentation to protect your clients’ interests and assist your staff and your practice attorney/trustee:
- Checklist – Practice and Planning Considerations
- Law Firm Checklist
- Law Office Contacts and Basic Information
- Winding Up a Sole Practice: A Checklist
- Winding Up a Firm: A Checklist
- On March 11, 2011, the Law Society participated in an event hosted by the Continuing Legal Education Society of BC and the Canadian Bar Association, BC Branch, entitled Putting success into succession planning for the solo and small firm lawyer. Materials are available through Continuing Legal Education (cle.bc.ca).
The numbers in BC
- There are 2,305 sole practitioners in private practice
- 29% of insured lawyers are sole practitioners
- In 2000, 45% of insured sole practitioners were over the age of 50
- 67% of insured sole practitioners are now over the age of 50
- Only 13% of sole practitioners have indicated on their trust reports that they have designated a winding up caretaker in the event of death or disability.
- Of those who filed trust reports, 65% are over 50, and 12% of those over 50 indicated they have designated a winding up caretaker.
- Financial advisers typically suggest you’ll need 70-80% of your pre-retirement income in retirement
- The Government of Canada has developed an on-line calculator (servicecanada.gc.ca/eng/isp/common/cricinfo.shtml) to help plan for retirement