Succession planning for (dearly) departed partners

PARTNER DEPARTURE LAW

It is prudent for law firms today to prepare for potential partner departures before they happen, with detailed plans for how to react if a partner or group of attorneys leaves the firm for another firm. But lawyers leaving voluntarily for greener pastures is not the only way that a partner or group can leave the firm. Succession planning for your law practice - planning for a partner's death or incapacity - is another critical component of risk management for partner departures.

Expect the Unexpected

Just like personal estate planning, it can be uncomfortable to consider situations where law practice succession planning may be required. On the other hand, as lawyers we know that the most critical aspect of prudent planning is to prepare for the unlikely or the unexpected. Law school casebooks are full of these unexpected occurrences that happened: accidents, illness, disability, unplanned retirement, and untimely death. Insurance plays a critical role in preparing for these possibilities. But detailed planning is also required.

Legal Ethics Rules Require Succession Planning

Succession planning for your law practice is more than just prudent preparation. Several of California's Rules of Professional Conduct can be interpreted as imposing a duty to take all reasonable steps necessary to plan for the unexpected departure of a partner, or yourself, from the practice. Rule 3-110, for example, imposes the duty of competence, which can be read to include taking reasonable steps to ensure that client matters will not be neglected or client interests prejudiced in the event of death or disability of any responsible partner. Similarly, Rule 3-500 requires California attorneys to keep clients informed of significant changes in employment, including death or incapacity. Rule 3-700 requires attorneys to take reasonable steps to avoid reasonably foreseeable prejudice to clients in situations where they will no longer be able to represent the client. Other rules can be interpreted as imposing similar duties, depending on the circumstances of your practice.

Succession Planning Is Good Business

Beyond these ethical duties, there are compelling practical reasons to create a succession plan. For law firms where certain partners practice in highly specialized or individualized practices, the process of succession planning can help to firm to identify who could handle certain matters if a key partner were not available. If you have one partner who handles estate planning, for example, and no one else knows anything about it, if something happens to make that partner unexpectedly unavailable, you will need a plan for how to get those matters to someone who can protect the clients' rights, and fast.

Protect the Value of Your Practice Even if the Worst Happens

From the partner's perspective, a succession plan can also help you, or your estate, to realize the value of your law practice in the event something unexpected happens to you. In an ordinary retirement at a law firm, your ownership interests would be purchased by the firm over time, and your clients would make an orderly transition to other responsible partners over time. You can achieve a similar result with proper succession planning, even in the face of unexpected events. And the value of the income from your law practice may be one of the most significant assets in your estate. Without a succession plan, your client matters will find new homes, but it may take time and you may not realize any value from the law practice that you dedicated the better part of your life to building.

The Succession Planning Process Is a Healthy Exercise

The process of law firm succession planning can also help managing attorneys to identify and to correct latent problems in the firm's partnership ranks. If you find during the process, for example, that the firm has one or more practices with only one qualified partner who knows anything about it, it may be time to consider whether some other partners should consider training in that practice. Similarly, if during your succession planning you discover that one or more partners have client files in places that are accessible only to them, consider remedying that situation. It's unlikely that your law partners are hiding client files in locked cabinets, hopefully, but they might have password-protected documents or data storage systems. That may be quite secure, but if no one else has the password, it's going to be a problem if the partner gets hit by a bus.

Practical Questions Are the Starting Point

For law firms, the starting point for succession planning is to ask some basic planning questions. If one or more partners unexpectedly dies or becomes incapacitated: (1) could someone else at the firm handle the clients and matters that partner was handling? (2) could a successor partner access the entirety of that partner's client files and other needed data? (3) how would you communicate these events, and the law firm's plan for handling matters, to clients as soon as possible? From these starting questions, the firm can prepare a detailed succession plan for each partner and practice. Hopefully it will never be needed.

From the individual partner's perspective, you can also start by asking some basic questions: (1) if you died tomorrow, or were incapacitated and never returned to your law office, what would happen to your clients and their matters? (2) would you or your estate realize any value from the income stream of the law practice you left behind, or would the client matters simply be transitioned to other lawyers? (3) would anyone in your firm, or outside your firm, know enough about how your practice operates to step in and operate the practice, even on an interim basis, in the event of your absence?

Avoiding these questions could result in needless and potentially serious risks to your clients, and to your family, if the worst happens to you or to a partner at your firm. The good news is that a law practice succession plan can minimize these risks. The bad news is that the worst happened.