Happy New Year! (Whew, aren’t you glad the Aughts are finished?) While trying to decide what to write for the first column of the new decade, I reviewed some of the calls and e-mails I have received over the past few months, and the word “transition” kept coming into to my head.
Perhaps it is the desire to learn something from tumult of the past few years, or maybe the beginning of a new year and decade, but I have noted more and more calls from practitioners who want information about “transitioning”. These calls are from a diverse population of practitioners. They come from those who have been practicing for many years who are thinking about the necessary steps to take should they want to practice less, or stop practicing completely. Also in this “transitioning” group are less-experienced practitioners who, in working for a more experienced practitioner, may be in line to take over the practice or want to work for a soon-to-retire practitioner with the hope of taking over the practice.
I looked up “transition” on Dictionary.com to make sure it was the appropriate word for the feeling I was getting from these callers. According to Dictionary.com, transition – which comes from the Latin meaning “to cross” – is defined as “movement, passage, or change from one position, state, stage, subject, concept, etc., to another; change.” Yes, that is the appropriate word. (NOTE: In the “interesting-but-off-topic” category, while searching for the word “transition”, an ad for The Emotional Life, a new PBS series about happiness, came up. Not sure what that means, but I found it interesting.)
This month’s column and additional online resources discuss various types of transitions, but mostly for transitioning from full-time practice. Future columns will discuss other transitioning issues. For the sake of word count, I will use the word “retirement”, but it can be any voluntary closing of a practice. Although the focus of the column are those practitioners who are just in the “thinking” stage, much of the information applies to anyone voluntarily considering closing a practice for other reasons. Some of those reasons include (but are not limited to): accepting a position with a firm, private company or government agency; judicial appointment; moving to another state, or other voluntary reasons.
If the past decade – especially the past two years – taught us anything, it is that being prepared helps you handle crisis more easily. Needless to say, the earlier you can start thinking and planning for retirement, the easier and more successful the transition will be. There are broad and personal issues, as well as practical “how to” issues, that must be addressed, and while most solo and small firm practitioners may focus more on the “how to”, all are important to consider.
Broad and Personal
When starting to consider retirement, you need to take a hard look at your finances. According to Boston College’s Center for Retirement Research (www.bc.edu/centers/crr/), you will need 65 – 75 percent of your current income to maintain your current standard of living. That is only an average and makes the assumption that you have no mortgage, no major expenses and have decent health care coverage. Your percentage may be different, but it will not be much less than 70 percent. You must determine now what type of income you will have for the next 10, 20 or even 30 years if you will not be practicing law.
This financial information may even help you decide whether you want to attempt to sell your practice or simply close it up. If you are in a small firm, you need to review your agreement to determine what benefits, if any, you receive from your firm. You should have a financial advisor, be it a CPA or a tax attorney, to guide you in these areas.
This is also a good time to take a look at how you spend your money in order to determine what activities or habits, if any, can or should be changed. (Note that I said “changed” and not “eliminated”.) In addition to reviewing your future income and expenses, you need to think seriously about “what you want to do when you grow up.” How do you plan to use the 60 - 70 hours a week that you used to spend on your practice? Will your future activities require more or less resources? If more, this may be a good time to start considering a budget if this is something you have not done. It may also be a good time to start keeping track of exactly where you spend your money.
If you are considering selling your practice, you need to familiarize yourself with Maryland Rule 1.17, Sale of a Law Practice. Again, you must have a CPA or other professional who has worked with selling a law practice to help with this process. A third party will be able to help you confidentially determine who may be interested in purchasing your practice, as well as determine its “value”. According to Jay Foonberg, in an article on selling a law practice on www.seniorlawyer.org, “The urgency or lack of urgency in buying or selling may affect the price. Hopefully, the lawyer will have begun the process of selling the practice to another lawyer or law firm as part of a retirement plan while there is time for give-and-take negotiation with a potential buyer.” (A PDF of the article can be found online at http://www.msba.org/departments/loma/docs/, under “Closing a Law Practice”.)
There are other ways to close your practice for retirement. You can simply finish all your work and turn out the lights. You can also begin to transition a younger associate or partner to take over your practice. Just as with selling your practice, the more planning, the easier the process.
Regardless of which method you choose for closing your practice, there are certain tasks which must be completed, such as disposing of client files, contacting and informing clients, and other administrative tasks.
Ideally, you had a policy for dealing with the disposition of client files. Unfortunately, there is no simple answer to the question, “How long do I need to keep files?” The answer is, “It depends.” The MSBA Ethics Committee has a number of opinions on the disposition of client files. They are 94-28 – Retention of Closed Files; 93-39 – Disposition of Client Files; 92-2 – Notification to Ex-Clients of Departure from Law Practice, Disposition of Remaining Escrow Funds; 89-58 – Attorney/ Personal Representative’s Duty Regarding Files of Attorney/Decedent; and 85-77 – Disposition of Files.
According to Mel Hirshman, Bar Counsel, Attorney Grievance Commission, who is himself retiring this year:
- “You must retain your records for five years after termination of representation, whether you sell your practice or not.”
- “You must notify your clients and offer them the portions of the file to which they are entitled.”
- “Files not retained must be properly destroyed.” (This was taken from a PowerPoint presentation from a 2005 Annual Meeting Program on “Retirement for Practitioners”, which is now available online
Ideally, all work will be completed prior to your departure. However, if work will not be completed before your departure, you will need a client’s permission before turning any file over to another attorney. You must inform clients that they have the right to not go with the attorney. You may decide to give clients the names of a number of attorneys so that they can choose. You should also make copies of any items in the file which you may need in the event of a malpractice claim.
The MSBA website now offers many packets of information regarding such topics as “Closing a Practice”, “Leaving a Law Firm”, “Starting a Practice”, “Of Counsel Relationships” and many others at www.msba.org/departments/loma/index.htm. Click on “LOMA Information Packets”.
Again, Happy New Year, and if you have any questions, please call or e-mail me