Your Guide to Law Firm Succession Planning
Are you reaching retirement age, considering a merger, preparing for the next generation of younger lawyers to take over leadership roles, or worried about an unexpected wind down of your legal career? This article discusses the ins and outs of succession planning for solo practitioners and small law firm owners, including insurance options for firm leadership succession planning. Continue reading to learn more about the benefits of succession planning for your legal practice.
What is Succession Planning for Law Firms?
Succession planning for law firms is a form of estate planning that includes the development of an official transition process from one attorney/law firm to another or detailing the process of closing a legal practice.
According to the American Bar Association (ABA), ethical obligations (i.e., Rules of Professional Conduct) and effective succession planning include, but are not limited to:
- Clear instructions regarding client files (i.e., bank account information, operating account data, etc.).
- Information about closed client files, law office rental contracts, vendor contracts, equipment leases, malpractice insurance coverages, computer passwords, and more.
- Liabilities owed and payment information.
- Successor compensation and retirement plan information.
Why Business Succession Planning For a Law Firm is Important?
The need for effective succession planning is not limited to retiring partners for large law firms. It's an essential element of practice management for firms of all sizes, regardless of practice area.
Generally, a solid succession plan is necessary for the following reasons:
- Protection against expected and unexpected events.
- Professional client service during transition periods.
- Execution of a long-term business strategy.
- Risk management evaluations for professional liability insurance.
- Retirement planning.
How Does a Law Firm Prepare For Succession?
Every law firm is different, but generally, your law firm succession plan template should include, but not be limited to, the following information:
- Client information (i.e., contact information, payment details, case data, fee agreements, client files, referral agreements, etc.).
- Login information and passwords for secure online accounts like e-mail, practice management software, social media accounts, and more.
- Pertinent financial information, including bank accounts (business and IOLTA accounts), credit card information, and more.
- Information regarding your law firm's malpractice insurance coverage.
- Vendor information, including SAAS tools.
- Access to physical and cyber security passwords and protocols.
- A triage lawyer with authorization to sell, transfer or shut down your law firm.
- An updated estate plan and General Durable Power of Attorney (GPOA) addressing your legal practice’s succession plan.
This information should be securely stored in a central location, digitally and physically.
Developing a Need-Based Law Practice Succession Plan & Exit Strategy
Do you want to help protect your law firm, employees, clients, and future in the case of retirement or an unexpected life event? In that case, your business succession plan should reflect your goals for every conceivable scenario. That can include:
- Closure or sale of your law firm.
- Partnering with a solo practitioner or another small law firm.
- Choosing the best successor and identifying compensation.
An effective business succession plan based on your needs can alleviate confusion, help protect your business assets and fulfill your ethical obligations to clients. If you’re unfamiliar with business succession planning practices, attending CLE courses about succession can be helpful.
When Should My Law Office Create a Succession Plan?
There’s no time like the present. The only way to plan for the unexpected is to prepare for the unexpected. Consider developing a succession plan that addresses different variables. The longer you wait to create a business succession plan for your law practice, the more you risk.
Interested in learning more? Check out additional Aon Attorneys Advantage educational resources here.
This article is provided for general informational purposes only and is not providing individual guidance. While care has been taken in the production of this article and the information contained within it has been obtained from sources that are believed to be reliable, no warranties, representations or guarantees are made regarding its accuracy, adequacy, completeness, or fitness for any purpose. Readers shall be responsible for how they use the information and resources contained in this article. Aon Attorneys Advantage accepts no liability for any loss incurred in any way by any person who may rely on this article. This article has been compiled using information available to us up to the date of publication.