The verse quoted by General Douglas MacArthur in his farewell address to Congress, “Old soldiers never die, they just fade away,” applies to many lawyers. Especially those in solo practice or working for small firms often don’t have an exit plan. They continue working, perhaps less, and perhaps taking off several months in Florida or elsewhere warm each winter, as their business trails off.
This can work very well, at least as long as it keeps working. The attorneys keep busy, keep earning some income, stay engaged, maintains her identity. Some lawyers keep working and skillfully representing their clients well into their 80s.
Fading Out Together
And it can work well for clients. They have continuity, can continue working with attorneys who know their history and with whom they feel comfortable. In some cases, the clients themselves are also getting on in years and their need for legal assistance may follow the same downward trend as the attorney’s practice.
But sometimes it doesn’t work. Illness and disability, whether permanent or temporary, often come with aging. Death, ultimately, is unavoidable. Attorneys who don’t plan ahead for such eventualities can easily leave their clients in the lurch. Clients may be left without representation in the middle of a transaction or ongoing litigation, or they may not be able to access their files.
On a number of occasions over the years, I’ve had to ask widows of deceased attorneys to search files in their garage for the papers of their deceased spouse’s clients. This could work until the widow moved or passed away, after which the files are generally lost forever.
This is not an issue for larger firms. They have built-in succession plans, many requiring the retirement of partners at specific ages, often 65 or 70. Some smaller firms also have built in succession plans if they’ve been fortunate enough to have younger attorneys in the office who can take practices over. Some “family” firms include lawyers from two or more generations who naturally take over their parents’ or grandparents’ practices.
But many solo practitioners and smaller firms do not have a natural succession plan. And it can be difficult to create. I’ve seen many older attorneys try for years to recruit a younger attorney to take over their practices with little success, in large part because it’s difficult to find the right fit.
So what is a boomer attorney who is not part of a larger firm or a smaller one with a natural succession plan to do? There are two main options: a contingency plan or a sale/merger.
Every older attorney without a natural succession plan should have a written arrangement with another attorney or firm outlining what will happen if she becomes disabled, whether temporarily or permanently, or passes away. This plan should govern the following elements:
- Access to files and client database.
- Contacting clients.
- Power of attorney for business matters.
- Payment of bills and collection of fees.
- Continued representation of clients.
- Ultimate disposition of files and client papers (such as original wills).
- How fees and costs will be allocated.
All of this is much easier in the digital age than it was previously since client files and data may be largely digitized, reducing the need to move paper files, though custody of original documents may still be an issue. We’ve learned through the pandemic that most client meetings can be conducted over Zoom, reducing the need to meet with clients in the retiring attorney’s office, saving the contingency attorney a lot of travel time.
Clients or prospective clients of older attorneys who are not part of larger firms should ask them whether they have contingency plans in place.
Sale or Merger
There is no market for law practices as there is for dental and accounting practices for three main reasons. First, there usually is not the same level of recurring business. Clients don’t come back annually or semiannually for tax returns or teeth cleaning.
Second, the value to the client and the value of the law practice are very closely related to the attorney herself. It’s her skill, experience and relationship with the client that the client values. It’s not a sure thing that the client will switch to a new firm with a new attorney.
Third, once your factor out the attorney’s compensation, many law practices are not all that profitable. In other words, once the new firm pays an attorney to handle the work of the retiring attorney, as well as overhead, there may not be a lot of profit to share between the retiring attorney and the new firm.
For these reasons, law firms absorbing practices of retiring attorneys are unlikely to pay a large lumpsum for the new practice. That’s not to say that the practice of the retiring attorney doesn’t have value for the new firm, just that it can be difficult to assess that value in advance. For that reason, most law firms sales are structured as long-term payouts based on the fees collected over several years from the retiring attorney or firm.
I recently described how this worked successfully when Margolis & Bloom absorbed the Norwood firm of Russell, McTernan, McTernan & Fruci in an article in Massachusetts Lawyers Weekly, “A case study in responsible attorney retirement.” https://masslawyersweekly.com/2022/02/25/a-case-study-in-responsible-attorney-retirement/ The Russell, McTernan attorneys were ready to retire and we were able to work out an arrangement under which we took over their files, took custody of original estate planning documents, continued to represent their clients, and engaged their key staff person, who continues to work with us today.
The arrangement was structured as a merger with the Russell, McTernan attorneys continuing to work as part of Margolis & Bloom during a transition period. They continue as “of counsel” with our firm, which permits us to continue to pay them a referral fee for business coming from their past clients, as well as any new clients they may refer to us.
We believe this arrangement has been a win, win for everyone. The Russell, McTernan attorneys have been able to retire without leaving their clients high and dry. They have continued to receive compensation for the good will they built up over decades. We have new business and a valuable new employee we would not have otherwise received.