The Journal of The DuPage County Bar Association

Back Issues > Vol. 23 (2010-11)

Udder Confusion:  How Sole Practitioners Can Estate-Plan Their Law Practice, Provide for Their Surviving Family, and Keep the Cash-Cows Satisfied
by James Reichardt

All practitioners who have learned to lead normal lives know the importance of vacation planning, and I don’t mean airfare, hotels, and rental cars. I am talking about taking care of your clients while you are enjoying some well-deserved rest and relaxation. Good practice management requires that your clients can receive important legal service when they need it even when you are not there to provide it yourself. That’s why many of us have a system of referrals and backups to take care of these short term client needs while we are gone; someone needs to tend the farm while we’re away.

But what happens when we take our "permanent vacation"? How do our clients get served when we are never coming back? And what happens to the valuable practice we have spent years developing and nurturing? Dairy farmers know they can’t take vacations because the cows must be milked twice a day or they dry up. Notwithstanding some attorneys we know who are really "milking it", what about our cash cows? How do we serve our clients and retain as much value in our practice for the benefit of our loved ones?

Just as the probate act provides for the disposition of the estate if we don’t write a will, the Illinois Supreme Court has provided for the pending cases of a deceased lawyer when there is no partner, associate, executor, or other responsible party capable of conducting the lawyer’s affairs. Under Supreme Court Rule 776, a receiver can be appointed to transition the deceased lawyer’s clients to new representation. To avoid having a complete stranger take over a practice under Supreme Court Rule 776, thoughtful solo practitioners can and should arrange for a transition in the event of their death or disability.

A relatively simple tool that can be utilized in the case of an attorney’s disability is the Statutory Short Form Power of Attorney for Property. The principal attorney can limit the applicability of the Power of Attorney for Property to business operations, while also providing for additional powers. Language can be inserted to empower the lawyer / agent to make deposits to, and disbursements from, the lawyer’s business accounts, including the IOLTA account. Language can also be included that enables the lawyer / agent to carry on the general representation of the lawyer’s clients (with the consent of the client.) However, the Power of Attorney only becomes effective upon a ‘written finding’ that the attorney is under a disability. Interestingly enough, it is not required that the ‘written finding’ be made by a physician. Ostensibly, one or more colleagues or even a family member can make the ‘written finding’.

Similar provisions for carrying on of the attorney’s practice after death can be included in a will. Under independent administration in Illinois an executor has broad authority to conduct and delegate administrative functions. Even though the executor might not be a lawyer, at a minimum the executor could appoint an attorney to continue the practice on a temporary basis. The lawyer should leave instructions with the executor regarding whom the appropriate lawyers are. Most solo practitioners have an automatic referral system in case of illness or vacations, and logically these same lawyers would be the ones contacted in the event of death or disability. Because the names of those trusted colleagues might change from time to time, the instructions should not be contained in the will itself, but on a separate memorandum for the guidance of the executor.

Even before having a will admitted to probate, the executor can hire agents and legal counsel to market and liquidate the lawyer’s practice. Quick action on the part of the executor is imperative because sooner or later the deceased lawyer’s clients will find other legal representation. If they find it on their own no benefit will come to the estate. But if the executor, with the help of a lawyer knowledgeable in law practice management, can promptly get the word out to potential buyers of the practice there is a chance the estate may turn some of the practice’s value into cash for the lawyer’s loved ones.

The sole practitioner’s will (or trust, as the case may be) should contain some specific direction to the executor to give prompt attention to the hiring of counsel for the marketing of the practice. Since the probate act gives an independent executor the power to sell personal estate for cash or on credit, and given the risky nature of the transaction, the executor should be prepared to accept a purchase offer that includes payment to the estate of a fraction of fees actually realized from the sale. The agreement between the solo practitioner’s estate and the purchasing lawyer or firm would contain a schedule and perhaps a sliding scale of payments to the estate for fees actually generated over a period of time.

Invariably the lawyer-client relationship includes the office staff. The purchasing firm or attorney would do well to maintain the employment of the office staff as a means of binding the clients to the new practice. Much of the good will established in the practice is a product not only of the lawyer’s professional and personal skills, but also those of the office staff: associates, secretaries, paralegals, and other administrative assistants. They are vital to the operation of the practice their retention under the new ownership can be made a condition of the sale.

Just as estate planning lawyers challenge their clients to consider all the different scenarios that life may hold in store for them, so should lawyers think about their own practices and all the "what ifs" that can occur. It would be well worth the investment of some non-billable hours for the sole practitioner to have mercy on his or her Executor by preparing a transition plan, a list of things to do to keep the practice alive, and suggest prospects of buyers of the practice, so that the valuable herd of clients can be nurtured. Since the Illinois Supreme Court now permits the sale of a law practice it’s possible that with good estate planning and prompt, effective, and savvy administration, a deceased or disabled attorney’s practice can keep the cash cows happy and producing milk for the solo practitioner’s family.

DCBA Brief