What Happens to Your Law Practice and Your Clients if Something Happens to You
An important subject that no on likes to think about!
by Linda Oligschlaeger
The two most unpopular things to think about are death and taxes - and not necessarily in that order. Most lawyers understand the benefits of
tax and estate planning for their clients, but planning for one's own demise? A little planning can save survivors and clients a lot of grief. For
solo practitioners and lawyers who work in firms - especially small firms - this is critically important. This is not a topic that any of us like to
think about and you're to be commended for reading this far.
Lawyers in private practice spend most of their professional lives helping their clients to prepare for the inevitable. But, like the plumber with
leaky pipes at home, they often don't take care of their own business, leaving a bereaved spouse or partner to pick up the pieces.
If life were ideal, all practicing lawyers would have the opportunity to wrap up their practices before retiring to a sunny golf course in Florida.
But, as we all know (even though we don't like to admit it), it doesn't always work that way. No one plans on a heart attack or a car accident. No
one counts on suffering other adversities, such as a serious disability or long-term incapacitation.
Post Mortem Responsibility
Even after they've departed this world, lawyers have a continuing professional responsibility to protect their clients. It may be stretching it a bit
to say that the lawyer who suddenly passed away has abandoned his or her clients, but that's really the issue. Suddenly, these clients are
without representation, and they may not even know it. This is particularly true with the clients of a solo practitioner. Lawyers can't even escape
malpractice claims when they're gone, because their estate may be subject to claims. Although the attorney-client relationship terminates when
the lawyer dies, the fiduciary obligations of loyalty and confidentiality continue much the same way as with any former client.
What's a lawyer to do?
All lawyers should take precautions while they are hale, hearty and fortunate enough to be enjoying their health. These precautions should
include a written plan of instructions that provides for immediately notifying clients and protecting their interest. You might consider the plan
similar to life insurance. When you buy it, you fully intend not to use it, but it's there if you do need it. Like an insurance policy, the written plan
protects your survivors. But the plan goes one step further. It also protects your clients, which in turn helps to protect your estate.
What if you have one or more partners who will take over?
I've taken some frantic calls from lawyers in partnerships as well as from family members of a lawyer who has suddenly died. They were
anxious because there were no provisions for the business and professional ramifications of the lawyer's death. Suddenly, there's a surviving
spouse who expects the deceased lawyer's income to continue, or who has an inflated value of the firm. How would your firm buy out the
estate?
Lawyers who have one or more partners should discuss dissolution issues at the time they form the partnership - when everyone is healthy and
feeling good about the current situation. Inevitably the firm will break-up, whether because of the death of one of the partners or for many other
reasons. If you haven't had these discussions, it's still not too late.
The partnership agreement, articles of incorporation or articles of organization must include a provision for the death, incapacity or
incompetence of one of the partners. In the event of a death, the partnership agreement should provide for the proceeds of life insurance, which
the firm might have purchased for the partners. This is particularly important if it is intended that the life insurance proceeds are to be used to
buy out the estate's interest in the firm or be used to reduce the amount owed by the firm to the deceased partner's estate. If life insurance
proceeds are paid to the partnership under individual or "key-person" policies that are owned and paid for by the firm, the firm should check with
an accountant about the proceeds. These may be included in the partnership's net assets when computing the payout due to the deceased
partner's estate.
The partners should also include provisions in their partnership agreement in case one of the partners becomes disabled, and the firm has
provided disability insurance. If so, are the disability proceeds paid to the disabled partner an offset to income?
Incompetency can be more difficult. As soon as the partnership is aware that a partner may be incompetent, immediate action should be taken
to ensure that the partner's clients are protected. The partner's recent work should be analyzed to determine whether there are any problems.
The partnership may also consider contacting The Missouri Bar's Lawyers' Assistance Director, Jim Howard, for assistance with this oftendelicate situation.
In the event of the death of one of the partners, basically the same steps should be followed as with a solo practitioner. One of the surviving
partners should follow a carefully laid out plan of action.
Solo Practitioner Plan
Many lawyers prefer to practice solo because they enjoy the freedom that arrangement brings, but it also comes with some additional
obligations. It is essential that solos have an emergency plan that provides for the orderly disposition and transition of client matters in case of
their death or incapacity. Typically, most solos haven't taken the time, or even thought about developing such a plan. No one is too busy to put
this off! Lawyers, especially solos, not only owe this to their clients, but to their survivors as well. By developing this plan and keeping it current,
you are essentially anticipating and preparing the steps your family, personal representative, office staff and successor lawyer will need to take
on the day of your death or incapacity. If it is all planned in advance, the burden is lessened significantly on those closest to you at a time when
they will be under extreme emotional distress.
Successor Lawyer
The first step in forming a plan should be to delegate a successor or backup lawyer. This person must be willing to step in and ensure that
clients are protected in case the solo dies or becomes incapacitated.
The successor lawyer should have a reasonably close relationship with the solo practitioner. Frequently, this is a mutual arrangement, with
each lawyer agreeing to serve the other in this capacity.
This relationship should be outlined in a written agreement, which clearly notes the successor lawyer's duties and any payment arrangements.
Fees may be offset by the increased caseload that the successor lawyer might gain from clients who choose to have the successor lawyer
complete their matter or for future business from these clients. The successor lawyer may be given the first option to purchase the law practice.
If not, the written agreement should clearly outline how the successor lawyer will be compensated. The arrangement could be on a flat
percentage split, on a file-by-file basis or on a pure time basis. Usually, the estate is entitled to receive funds for work done prior to the lawyer's
death or incapacity.
Careful attention should be give to confidentiality issues and conflicts of interest. Sara Rittman, staff counsel with the Office of Chief Disciplinary
Counsel, suggests that under these circumstances there can be risks of violating of the Rules of Professional Conduct concerning
confidentiality. However, Supreme Court Rule 5.26 may offer the best protection against this. The successor lawyer may ask the presiding
judge in the circuit in which the deceased or disabled lawyer practiced to officially appoint him or her as successor. Consideration may also be
given to naming a back-up lawyer to your successor lawyer in situations where there may be a conflict of interest with the successor lawyer.
Sara Rittman also suggests that solo practitioners consider adding a statement to their written lawyer-client contracts in which the client agrees
to have the successor lawyer take over the file, even if only temporarily. Even if you stay healthy, someday you might want to take an extended
vacation and some of your clients may need legal assistance during that time.
For the protection of the successor lawyer, an indemnification could be part of the plan for the successor lawyer, protecting him or her from any
errors and omissions that may have been made by the deceased or incapacitated lawyer. However, it is recommended that the planning solo
get prior written approval from his or her professional liability insurer before executing any such indemnity agreement.
Many solo practitioners have a tendency to keep a lot of information about their practices in their heads. The absence of written records can be
a tremendous challenge for the successor lawyer. This is where a trusted secretary or paralegal can be invaluable to the successor lawyer.
Written Instructions
The ABA's publication, The Lawyer's Guide to Retirement, contains a chapter that provides samples of the solo practitioner's letter of
instructions in the case of a sudden death or disability. A Practical Guide to Achieving Excellence in the Practice of Law, published by ALI-ABA,
also provides a checklist of actions to take when a lawyer dies or becomes disabled.
Your letter of instructions should essentially be a "road map" that will guide your family, staff, personal representative and successor attorney.
The written instructions do not need to include every little detail that might be required, but it should be a guide to where to find necessary
documents and records. For example, the instructions should tell the person reading it where to find insurance papers, safety deposit boxes,
client directories, files, etc. Essentially, with your written instructions you are providing for an orderly system to settle your own estate and wind
up your law practice. It's also important that your staff, spouse, and successor know where to find these instructions if they should be needed.
The office policy manual should note where the instructions are located. Does this mean that you might also need an office manual?
Separate personalized written instructions should be addressed to your family, your personal representative and/or successor attorney and
your office staff, if applicable. The following list is certainly not all-inclusive, but it should give you an indication of what should be included in
your written instructions.
1. Personal information about family and beneficiaries; your social security number.
2. Funeral and burial (cremation) instructions, memorials, preparation of your obituary, and any intended anatomical gifts.
3. Location of your will or trust.
4. Location of safety deposit box.
5. Insurance records including a list of policies (life, credit life, medical, accident, professional responsibility property, building, contents, etc.),
a description of coverages and where these policies are located.
6. Personal financial information that includes your assets and liabilities and where they are located, best estimate of their worth, how your
assets are titled, where you have monthly payment obligations and where your tax returns are located. Your dad's old '57 Chevy may be
garaged across town and worth more than the $500.00 that a collector is offering your survivors.
7. Whom you want to be notified. Among those to be notified should be the courts where you practice, opposing and associated counsel,
your professional liability insurer, The Missouri Bar, the Supreme Court, the Office of Chief Disciplinary Counsel. It could be very perplexing to
your survivors for your dues statement to arrive next year because the Court wasn't aware of your death. Others to be notified might include law
school friends, civic clubs that you belong to, your accountant, stockbroker, and others with whom you have frequent dealings.
8. Location of your law office records including open client files, stored files, billing records, accounts receivable and payable, leases,
passwords to on-line services, equipment manuals, maintenance agreements and other contractual obligations.
9. Successor lawyer information: including who has been designated, how to contact that person and the written agreement or financial
arrangement for serving in this capacity.
Successors Lawyer's Duties
The role of the successor should not be taken lightly; it's an important role with significant responsibilities. The role is similar to that of a best
friend who has been asked to assume responsibility for your minor children if something happens to you. Successor lawyers should be aware
that they owe these clients the same duty as owed to their other clients. Below is a list that includes some of the successor lawyer's duties. This
list is not all-inclusive and is meant as an outline or starting point.
1. Request that the presiding judge in your circuit formally appoint you as successor as outlined in Supreme Court Rule 5.26.
2. Screen for conflicts of interest. This should be done before actually performing any of the duties as successor lawyer.
3. Clients with pending matters should immediately be notified of the lawyer's death or incapacity. The successor lawyer should offer to
meet with the clients to discuss whether they want the successor to take over the matter or have their file sent to their new lawyer.
4. Clients with inactive files should also be notified and asked to either pick up their files within a certain time period or have the file
forwarded to another lawyer or the successor lawyer, with their permission.
5. Verify coverage of deceased or incapacitated lawyer's professional liability insurance and determine if claims will be received after the
coverage expires.
6. Immediately check the deceased or incapacitated lawyer's calendar for appointments, court dates, deadlines, statutes of limitations, etc.
that all require immediate attention. Make arrangements for rescheduling or work that must be completed at once.
7. Review contents of safe or other depository for client documents being held in safekeeping. Documents such as wills should be returned
to clients or with the client's permission should be transferred to the successor lawyer or another lawyer of their choice.
8. Review the deceased or incapacitated lawyer's trust account and distribute clients' funds where appropriate or refund unearned fees.
9. Bill and collect earned fees.
10. Assist the personal representative to value the law practice for federal estate tax purposes or if it is to be sold.
11. Assist with the sale or sublease of the office, if this is necessary.
12. Assist with the closing of the office and sale or disposition of office equipment.
13. Assist staff to obtain new employment, if so desired or outlined in the deceased lawyer's plan.
What about the accumulation of closed files?
I have heard unfortunate stories about spouses of lawyers, particularly solo practitioners, who have been left with the unintentional bequest of a
garage or basement full of old files that they are afraid to dispose of. One elderly widow parked her car outside for years because the sacred
files took up the precious space in their garage. In addition to losing her parking space, she also lost her peace of mind - she worried quite a bit
about what would happen to the files when she passed away.
Here's a wonderful opportunity to avoid burdening your survivors with old files. Part of the plan should provide for the protection of the client's
interests and guidance for the successor lawyer who assumes the responsibility for the files. Those files that cannot be destroyed or returned to
the client should be given to a custodian for safekeeping.
Imagine the peace of mind that you'll have on frosty mornings, looking down from the great beyond, seeing your spouse's care snug in the
garage.
Sale of a Law Practice
In the good old days, lawyers could not sell their law practices. When lawyers died or closed their practices, all that could be sold was the office
equipment, furniture, law books, etc. However, with the adoption of Rule 4-1.17 by the Supreme Court of Missouri, as of July 1, 1995 lawyers
are permitted to sell or purchase an existing law practice, including good will. The estate of a deceased lawyer may also sell the law practice.
But, survivors may need assistance with valuing the practice and wrapping up the affairs of your firm.
If the seller of the law practice is the deceased or incapacitated lawyer's estate, the purchaser is required to notify the clients and obtain their
written permission to act on their behalf. The purchaser must place an announcement about the purchase in a local newspaper within that
county at least thirty days in advance of the transfer.
Conclusion
If you're still reading this article at this point, you should be applauded for having the courage and consideration to at least think
about creating a plan to wind down your practice, if you should suddenly die or become incapacitated. However, you're not off the hook
yet - you still have to put the plan in place. This requires some effort and time. Since death and taxes go together, why not set aside time every
April after you pay your taxes to carefully review your plan? You'll have both of these tasks behind you for another year. And, you'll have the
peace of mind that should something unexpectedly happen to you that you will be remembered as a lawyer who had all his or her affairs in
order.
References:
Lawyers planning for a time after their death or incompetence, as well as successor lawyers should review Missouri Supreme Court Rule 41.5(e) - sharing fees among lawyers; Rule 4-1.17 - sale of a practice; Rule 4-5.4(a) - paying fees to an estate and Rules 5.26 and 6.02(b) resignation from the practice of law.
Resources about valuing a law practice, developing a plan for your law practice if you should die suddenly, samples of letters of instructions
and others are available through the Law Practice Management Information Center and lending library at The Missouri Bar.
Author
Linda Oligschlaeger is the Membership Services Director at The Missouri Bar. Her responsibilities include providing assistance with law practice
management issues, administering the Fee Dispute Resolution, Complaint Resolution and overseeing MoBar Net, The Missouri Bar's computer
network and the Solo Small Firm Conference.