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Succession planning is something that should be relevant to all lawyers in active practice, regardless of the stage that they are at in their career. All lawyers need to have a plan in place to ensure that client interests are protected in the event of their sudden illness, death, incapacity or impairment.
In addition to circumstances beyond their control, lawyers can decide to wind down their law practice for any number of reasons: change of career, pursuit of non-legal opportunities, retirement, moves to in-house counsel positions, judicial appointment, or parental leave. It is important to have a plan in place to deal with these career transitions in a systematic way and to allow sufficient time to cover the necessary steps.
Essential information relating to client matters and the ongoing obligations of the practice must be able to be interpreted by an assisting lawyer regardless of whether that is a partner, associate, friend or formal custodian. For a lawyer in a small firm setting or sole practice, it is particularly important to have arrangements in place for another lawyer to step in and ensure that clients are not prejudiced and that your staff and family are not placed in an overwhelming position.
As the age demographic of the profession shifts, the potential for more lawyers to find themselves in a position where they are forced to leave practice suddenly is also increasing. When a lawyer does make a sudden exit from practice, and there is no succession plan in place, the plan is incomplete, or no arrangements have been made relating to access to the trust account, the costs to the practice and the risks to the clients can be significant.
Where the exit plan includes the sale of a law practice, prior planning can greatly impact the value that stands to be realized. Good practice management over the life of a practice (or at least the last five years) can go a long way toward creating an asset that someone is willing to purchase. There are both ethical and financial considerations that affect the sale of a practice and ultimately a great range in the values that are placed on these. It is important to be realistic in terms of what a lawyer stands to recover, and to allow sufficient time to adequately prepare and find the right person to take over the practice. This is not something that happens overnight and not every practice is salable.
The following checklists have been provided to serve as a starting point in developing a succession strategy for a law practice:
Written by: Jocelyn Frazer, Practice Advisor