Checklists for succession planning

Note: This article originally appeared in Beyond Big City Law, a publication of the Canadian Bar Association Alberta Branch Access to Justice Committee, published in November, 2014. It is reprinted with permission from CBA-Alberta and the author.

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.

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.

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 systemic way and to allow sufficient time to cover the necessary steps.

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.

Checklist: Planning for the unexpected

1. Maintain an office procedure manual outlining all key aspects of your practice and a list of all law office contacts. Some lawyers prepare a letter to their staff or spouse directing how matters should be dealt with in their absence. (See Chapter 57 of Flying Solo: A Survival Guide for the Solo and Small Firm Lawyer Fourth Edition, for a sample letter).
2. Maintain an office limitation system and client file diary system, accurately reflecting all deadlines and all reminders so that next steps on files can be easily reviewed. Keep these systems up to date.
3. Ensure that each client file contains sufficient detail that another lawyer taking over the file would know where the matter stood at any point in time.
4. Keep your time and billing entries current.
5. Obtain life insurance along with a disability policy to cover both your personal requirements in the event of loss of your earning power, and also to cover the costs associated with hiring another lawyer to administer your practice and cover cash flow requirements as the practice is closed or sold.
6. Make arrangements with a colleague or another lawyer for them to step in if you are not able to practise, for whatever reason. Consider whether a formal agreement is appropriate – possible examples of such agreements are available on the LSBC website but it is important to check with your own Law Society's audit department to understand how these agreements will be viewed. Law Society of Alberta R. 119.21(1) requires approval by the Executive Director for a lawyer who is not a lawyer of the law firm to sign on a trust account. Consider including provisions in your retainer agreement as to the provisions in place in the event of your death, incapacity or impairment.
7. Ensure that you have a valid will, including any terms required to deal with practice-related issues. Also consider whether a Power of Attorney is required to deal with banking and trust accounting issues or your practice generally.
8. Make sure that your staff, partners/associates and family are aware of the arrangements that you have made.

Checklist: Selling your law practice

1. Review open files and determine whether any can be completed and closed.
2. Review closed files and determine whether any should be destroyed, stored at an alternative location, or will be transferred to a prospective buyer.
3. Consider a timeline for your exit from the practice. Do you intend to gradually step out, see this as a five-year plan, or need to exit quickly at any price?
4. Where possible, plan ahead and critically review your practice. Ensure files are well-organized and well-documented, that your limitations and reminder systems are comprehensive and up to date, that you have an effective system for screening for conflicts, that you have an effective trust accounting system.
5. Consider what you have to sell. Will you sell your hard assets, such as equipment, furniture, leaseholds, or books? Generally, used books carry little-to-no value - online reference services have largely replaced law libraries. Used furniture, filing cabinets, computers and peripherals are not worth very much but you can get an appraisal done to assist you in determining the value of these items. Leasehold interests may have value particularly if there is a reasonable amount of time left on the lease.

   What about the immediate practice sources of revenue (receivables and work in progress)? Receivables are often best left to the seller to collect, but if included in the purchase price should be examined carefully, discounted for age, and the seller's cooperation in terms of information, taxation, and other collection steps should be provided for in the agreement. Consider selling these receivables to a collection agency (subject to an agreement restricting strong-arm tactics). The transfer of any current files to a successor is obviously subject to client consent.

   What is your practice's potential for generating future income (goodwill)? It is hard to place a value on the goodwill of a practice - the location of the practice, nature and size of the practice, in terms of payment, stability of client base among other factors, can influence value. Consider whether the selling lawyer will remain during a period of transition, whether existing staff are likely to remain with the practice, whether efficient, effective business systems are already in place. Practices that have a high degree of personal goodwill - where the practice is dependent upon the personal characteristics of the individual lawyer - have little value. You need to be evaluating your practice in terms of factors that generate a profit and are transferable to a buyer. What a prospective buyer is looking for is some degree of confidence that they will be able to achieve the same results going forward.

6. Review your financial records and ensure they are up to date. A prospective buyer will likely want to review items such as financial reports for the past three-to-five years, title to any assets to be included, det agreements, equipment and office leases, maintenance contracts and subscription agreements for library services, filed business and payroll returns and any policies for excess insurance coverage.
7. Establish a value for your practice and terms that you would be willing to consider. A professional business valuator can assist in determining a figure. Factors that will influence value include:
   1. Terms of payment;
   2. Geography;
   3. Nature of the practice;
   4. Size of practice;
   5. Stability of the client base;
   6. Earn-out or pay-out based on collections can give buyer comfort in only paying for revenues received, and may provide incentive for seller to encourage clients to remain.
8. Describe what you are selling. Prepare a confidential information memorandum which will provide key information about your practice's financial picture.
   1. Include a short history of your firm and your practice areas;
   2. Provide a general description of open files and the billable workload (withouth divulging any confidential client information);
   3. Create a current financial picture of your firm’s operations;
   4. Consider having all potential buyers agree to protect the confidential information relating to your practice by signing a confidentiality and non-disclosure agreement;
   5. At this stage in the sale process you should not be disclosing any confidential or privileged information relating to clients including their identities.
9. Advertise the sale of your practice in local bar circulations or other sites as desired. Consider hiring an agent to assist you in marketing. Talk to other lawyers in your area. Internet bulletin boards and email listservs may be affordable alternatives for communicating the opportunities associated with your practice.
10. In arriving at a mutually acceptable sale price, other considerations may include how clients will be advised of the sale and their options regarding the transfer of files; whether the firm name will be transferred, what role the selling lawyer will retain and for how long.
11. Review Checklist: Closing down your law practice for other relevant steps.

Checklist: Closing down your law practice

Dealing with open files

As you close down your practice, here are some suggestions for dealing with open files. Some of these ideas may not apply in your specific situation.

1. Decide when you will stop accepting new files to allow an orderly winding up of your practice.
2. Finalize as many open files as possible, ensuring that all final reporting is completed prior to wind-up.
3. Consider whether you have any ongoing obligations, such as undertakings, and make arrangements to be relieved of them or to have them transferred to another lawyer. Consider, too, whether clients may be expecting you to take care of things like renewals, options, etc.
4. Review wills to determine whether you have agreed to be executor or trustee. If you no longer wish to act in that capacity, consider asking the testator to revise the will or to add a codicil to appoint someone else. If the testator cannot be located, you may attach a renunciation to the will.
5. If you have any original documents held in safekeeping, determine if they are held on undertakings, on trust conditions, or on an agreement that will continue to apply. Seek written instructions from the necessary parties to alter the arrangements and to transfer the documents to a new location.
6. Write to clients with open files to notify them that you will be closing your practice and they will need to retain a new lawyer. As them to either pick up the original file or sign an authorizing for you to release the file to a new lawyer. In this letter, tell the client about important deadlines.
7. Before transferring files to other lawyers, give them an opportunity to check for conflicts of interest.
8. If a client is picking up a file, give a date by which it should be picked up. Make a copy of the file for yourself. Ask clients to sign a receipt acknowledging that they received their files.
9. For each active file being transferred to another lawyer, prepare a detailed memo on the nature of the file and the work that remains to be done. Clearly note limitation, trial, chambers, discovery, or other pertinent dates. Keep a copy for your own records.
10. For cases that have dates set for questioning, court appearances or hearings, discuss with the client how to proceed. Where appropriate, request new dates. Send written confirmations of these new dates to opposing counsel and to the client.
11. Legal Aid certificates cannot be transferred to another lawyer. You should notify the appropriate Legal Aid office of the files that are affected, and your reason for withdrawing, and send a final bill, marked “Final.” The client will need to be notified, instructed to contact Legal Aid and to seek a new certificate. (A note of caution: given recent changes to Legal Aid, the client may no longer be eligible and a new certificate may not be issued.)
12. Choose a date on which you will check to see if all of your cases have one of:
    1. A filed Notice of Ceasing to Act;
    2. A filed Notice of Change of Solicitors; or
    3. When necessary, evidence of authority to withdraw.
13. Seek instructions from corporate clients for new addresses for their registered offices, prepare the necessary resolutions and notices, and file a notice of change form with the Registrar of Companies.
14. File a change of address notice at the Land Titles Office if named in any builders’ liens, caveats, certificates of lis pendens, etc.
15. To inform the public and any clients you have not been able to reach, place an ad in the local newspaper that the practice will be closing on a specific date and who to contact after that date.

Dealing with closed files

1. Review closed files to determine whether they should be stored, destroyed, returned to the client, or transferred to the lawyer who will be assuming ongoing files. Check for anything belonging to the client but not in the client’s file, such as items in your safety deposit box. Return all property held in safekeeping to its owners. Refer to the article “File Retention and Document Management” on the Practice Advisor’s page on the Law Society of Alberta website for further information.
2. Where file information is stored in electronic format, consider how and where it will be stored and retrieved after wind-up.
3. Decide whether you will store any original wills or transfer them to another lawyer. Remember that you will continue to be responsible for any original wills in  your possession.
4. Let the Law Society’s Records department know where your closed files are located.

Finances

1. Review your time records and files:
   1. Prepare and send out accounts for unbilled work in progress and outstanding disbursements.
   2. If the billing is on a contingency fee basis, refer to the provisions in the contingency fee agreement relating to the amount to be paid if the lawyer withdraws, otherwise you will have to transfer the file to a new lawyer on trust conditions and once the matter is concluded the new lawyer will need to so advise you and a quantum meruit allocation will have to be applied.
2. Note that even after you cease membership in the Law Society or take inactive status, you may collect fees for work done while you were practising. You may also be compensated for files transferred to another lawyer by receiving a percentage of future billings for work done by your practice.
3. Review trust accounts. After billing clients and deducting fees and disbursements where appropriate, return trust funds to the clients or as directed in writing by the clients.
4. If trust money is held under agreements with or undertakings to third partiies, get the consent of those parties before transferring the money. If the money is held in trust, get the transferee lawyer to assume the trust conditions and get the entrustor to agree to substitute the transferee lawyer as the new entrustee.
5. If you hold any unclaimed trust funds or funds that you cannot attribute to a client, Law Society Rule 119.27 sets out the procedure for paying them to the Law Society.
6. When all trust money has been disbursed, inform the bank that the trust accounts can be closed.
7. Prepare your final accounting form and file it with the Law Society as required.
8. Pay any outstanding firm liabilities including payroll, income tax withholding, trade debts, GST - GST, WCB, etc.
9. Determine whether it will be necessary to leave open a general account with a reserve to satisfy any outstanding obligations or for receipt of any accounts receivable after your practice is closed.

Staff

1. Give staff sufficient notice of termination or compensation in lieu of notice. Verify statutory notice requirements.
2. Make arrangements to cancel or otherwise deal with any employee benefit plans.
3. Direct your accountant or bookkeeper to prepare Records of Employment, calculate all necessary holiday pay or otherwise deal with any employee benefit plans.
4. If you have an articling student, make arrangements to assign the articles to another lawyer who is qualified to act as a principal.

Premises and office equipment

1. Contact your landlord as soon as possible and, if necessary, make arrangements to sublet or assign your lease.
2. Contact law schools, community colleges, and courthouse libraries to see if anyone will purchase all or part of your library. Notices in the local courthouse barristers’ lounge or in a Canadian Bar Association newsletter might also locate buyers. You can also check with the Legal Archives Society of Alberta if you think you might have items of historical interest.
3. Dispose of office furniture and equipment:
   • Where equipment has been leased, contact leasing companies to end leases and maintenance agreements or to arrange assignments.
   • When neither cancellation nor assignment is possible, have sufficient funds available to continue the payments on the leases or to pay them out.
4. Notify publishers of legal directories and cancel subscriptions to books and journals and terminate any online advertising.
5. Send letters to all suppliers advising them that the practice will be closing and notifying them of the address to which future correspondence may be directed.
6. Notify public utilities.
7. Arrange to forward your telephone calls and mail.
8. If you have a website, consider running a notice for a short time advising that the practice is now closed and providing new contact information.

Memberships

1. Discuss membership status with the Law Society. You’ll find the forms required to resign or become an inactive member on the Law Society website. A partial refund on a pro-rated basis may be possible if you move to inactive or retired status.
2. If you’ve paid for a Canadian Bar Association membership within the past month, contact the national office at 1-800-267-8860 to ask for a refund.

Professional liability insurance

1. Mandatory coverage - Contact ALIA to terminate your coverage if you are not going to be in private practice. You will still be covered for future claims arising from professional services rendered while you were insured, subject to the terms in place at the time the claim is reported.
2. Excess insurance - If you have excess coverage, check the policy for deadlines and terms for extending coverage to future claims. Excess insurance policies do not provide coverage for future claims unless you specifically arrange for it. If you purchased excess coverage through the Law Society’s program, contact ALIA; if elsewhere, contact your insurance broker. If you will be practising with a new firm, check to see if they have excess coverage that protects you for prior acts.

Other

1. Consider who else you need to tell about closing your office.
2. Appointments under a Power of Attorney remain (subject to any specific provisions in the document) in full force and effect regardless of whether you are practising - contact any clients if you do not wish to continue acting and seek instructions.
3. Your status as a commissioner for oaths and notary public is dependent on your status with the Law Society of Alberta. For further information on what you can do, refer to the article “Am I a Commissioner or Notary?” on Practice Advisors’ page of the Law Society website.
4. If you are no longer practising law but are still acting as estate trustee, mediator, and immigration consultant or otherwise providing services that are often, but not exclusively provided by lawyers, ensure that you are clear to clients and others in which capacity you are acting.

Jocelyn Frazer obtained her LLB from the University of Alberta in 1989 and was called to the Alberta bar in 1990. She has practised with a focus on real estate, condominiums, wills and estates. Jocelyn currently holds the position of Equity Ombudsperson and Practice Advisor with the Law Society of Alberta.