LAW FIRM SUCCESSION PLANNING

Common reasons lawyers close their practices include a medical disability, wanting to retire, a move out-of-state, or a career change. While the specific steps that need to be taken and the time frame involved can vary significantly depending upon the reasons driving the closure and the type of practice being closed, the following checklists cover the basics of what most lawyers will need to think about.  If time allows, be prepared for the process to take six to twelve months and sometimes longer because the obligations to protect client confidences as well as the interests of the client make closing a law practice more difficult than closing other types of businesses. Finally, note that jurisdictional rules do differ, thus a review of your local rules and ethics opinions, perhaps coupled with a call to your local bar counsel would be well advised early in the process.

Checklist for Closing Your Practice

____ Build out a timeline and assess the status of all active matters.

____ Let your most trusted staff know what your plan is as you’re going to need their help in implementing it. Additionally, key staff deserves to know your intentions once you know the date you hope to have the transition completed. If possible, give them a date certain and advise them if you are willing to be a reference for them. After all, these folks need to be able to plan for their transition as well.

____ Cease taking on any new matters.

____ Bring to completion and close as many active matters as you can.

____ Notify all clients of your plans on matters you are unable to complete. This letter should advise them that you are unable to continue representing them and that they will need to retain new counsel. Inform them about relevant time limitations and time frames important to their matter. Explain the how and where they can obtain a copy of their file and set forth a deadline for doing so.

____ Provide active clients with copies of their file and keep your original files. Clients who pick up their file should sign a receipt. Clients who wish to have their file transferred to another attorney should sign an authorization for you to do so.

____ Notify the court. On matters with pending court dates, depositions, or hearings discuss how to proceed with each client. Request extensions, continuances, and the resetting of hearings where called for. Send written confirmation of these changes to opposing counsel and your client. Obtain permission to submit a motion and order to withdraw as attorney of record.

____ Confirm you are out. On matters before an administrative body or court, pick an appropriate future date to check and confirm that a substitution of counsel has been filed or that your motion to withdraw has been granted and then follow through with checking.

____ Notify all clients of your file storage arrangements. Let them know where files will be stored, how they can obtain a copy if ever necessary, and if not previously addressed, set forth your file retention policy. If closed files will be stored by another attorney, obtain client permission to have the closed files transferred and provide contact information for this attorney.

____ Closeout your trust account once it has been audited and reconciled. If funds are to be transferred to a new attorney, disburse those funds by making the check payable to the client and the new attorney. Notify the bar that your trust account has been closed and maintain your trust account records in accordance with the rules in your jurisdiction.

____ Preserve your books and records. In a number of jurisdictions, RPC 1.15 requires you to keep general and trust account records for at least five full years following the termination of the fiduciary relationship. This information can be preserved in a digital format.

____ Review your malpractice policy and contact your carrier in order to understand the options and costs associated with the purchase of an extended reporting endorsement, commonly referred to as a “tail.”

____ Notify relevant bar associations and professional organizations.

____ Deal with client property still in your possession such as original wills, client corporate books, unclaimed funds, etc. Checklist for Winding up the Business

____ Give notice of termination of all rental or lease agreements.

____ Cancel your telephone service and arrange to have calls to your office number forwarded to your home or other number or consider placing an automated message on your office line that will remain active for at least several months post closure.

____ Address any confidentiality and file storage concerns with computers and related tech.  Prior to donating, selling, or giving away any device, backup all data that you wish to maintain long-term and then wipe the data from every device.

____ Notify all vendors and make plans to close these accounts.

____ Cancel or change any existing advertisements and legal directory listings wherever possible. Don’t forget about your website and social media presence.

____ Meet with your accountant to discuss dissolution of your firm, obtain tax advice, establish the schedule for preparation of final financial statements, determine what state and federal agencies need to be notified, etc.

____ Meet with any lenders to discuss repayment of outstanding loans.

____ Cancel all firm credit cards.

____ Determine where and for how long you will need to store your business records.

____ Determine where mail and e-mail should go post closure then notify the post office and make any necessary changes to all email accounts.

____ Consider setting up an automated reply on email accounts that are to be closed and placing a static page on your website that announces the closure of your practice along with information about where closed files will be stored.

____ Cancel all business memberships and subscriptions to include online accounts.

____ Determine the disposition of furniture, fixtures, library, art, etc.

____ Make arrangements to have all utilities turned off in a timely fashion.

____ Check with your accountant or financial planner regarding retirement plans and rollover options.

____ Notify all insurance companies, to include your premises liability and workers compensation carrier.  Don’t forget to obtain advice on conversion options for health, life, and disability insurance.

____ Close the operating account once all outstanding receivables have been collected and all outstanding bills have been paid.

____ Dispose of unused office supplies. Schools or charitable organizations would be pleased to be the beneficiary of such items.

____ Destroy all unused checks, deposit slips, etc.

____ Avoid potential fraud and identity theft issues by responsibly “retiring” your online presence to include your firm’s domain name, website, email accounts, online listings, and social media profiles.  A great resource that details all you should be thinking about as well as the steps you will need to take can be found at https://www.themodernfirm.com/blog/qotw/retirement-guide-law-firmswebsite-online-presence/ 

A lawyer can decide to close her practice for any number of reasons.  Disability, retirement, disbarment, a move out-of-state, or a career change are the more common ones we hear.  While the specific steps that need to be taken can vary significantly depending upon the reasons behind the closure, this article seeks to provide some general guidance on the principal issues that will arise.  At the outset, understand that in many instances the process of properly closing a law practice can easily take six to twelve months and sometimes longer because the obligations to protect client confidences as well as the interests of the client make closing a law practice more difficult than closing other types of businesses. Finally, note that jurisdictional rules do differ and a review of your local rules and ethics opinions, perhaps coupled with a call to your local bar counsel would be well advised early on in the process.

The first step one should take after making the decision to close is to determine what files can be finalized prior to closing and then seeing that enough time is set aside to enable you to follow through.  This does mean that you will need to make a decision as to when to stop taking on new matters and also when to notify staff as they will be interacting with the public as well as current and past clients once the news breaks.

The second step is to write and send a letter to all clients with active matters that cannot be closed in order to advise them of the upcoming change.  Typically these letters will inform the client of any relevant time limitations or time frames, provide instructions as to how and where they may obtain a copy of their file, and advise them to find a new attorney as quickly as possible.  An offer to assist the clients in finding a new attorney by providing a few names or the phone number to a local lawyer referral service would also be appropriate.  Don’t overlook the importance of setting forth your file retention policy and providing post closure contact information in the event a client needs a copy of their file at some later point in time.  It is for this reason that some jurisdictions also require that a similar letter be sent to past clients.  Where called for, these initial letters are usually followed up with a full accounting of client funds that remain in the trust account and/or a statement of fees owed by the client.

As clients respond to these letters, remember to retain your original file and return to the client any original documents and/or client property such as original wills, deeds, stock certificates, signed contracts, promissory notes, etc.  Again, clients get copies of your file; you get copies of their original documents.  Don’t forget to document the disposition of the files in case questions come up post closure.  Have clients sign an authorization to release their file to their new attorney or sign an acknowledgement that they picked up a copy of their file.

On matters that have pending court dates, depositions, or hearings, have a conversation with the client in order to discuss how to proceed.  A request to reset a hearing or a request for an extension or continuance may be called for and, once received, confirmation of the granted request should be sent to opposing counsel and your client.  For cases before a court or administrative body, obtain client permission to submit a motion and order to withdraw as the attorney of record and at an appropriate time verify that all motions to withdraw have been granted.  If the client has obtained a new attorney, make certain that a Substitution of Counsel is filed.

If, over the course of your career, you failed to review and destroy old files that no longer needed to be retained, now is the time to begin.  The costs to continue to maintain closed files can be significant and you have an ethical obligation to take care of this.  Don’t burden a spouse by leaving this for them to deal with should your spouse outlive you.

When you originally closed the file, you should have separated all the original documents that belong to the client and returned them to the client.  If you did not, do it now.  In fact, a review of every file prior to destruction is a good idea as sometimes original documents were overlooked when the file was initially closed.

Remember that in most jurisdictions the file belongs to the client and some clients will want their original file as opposed to having it destroyed.  This means that you can’t simply decide to destroy client files absent client awareness and approval.    If you did not obtain the client’s instructions when you closed any given file, seek those instructions now.  Many attorneys will simply send letters to their clients’ last known addresses.  Once you learn their wishes, carry them out.  If you are going to destroy a file, make sure you follow through with the notion of destruction.  “Destruction” does not mean leaving the file in a dumpster behind the office.  You should incinerate or shred these files.  You cannot compromise your client’s confidences, even in file destruction.  Again, document your actions.  Track the client name, file matter, method of disposition (destroyed, returned) and date of disposition.

Turning to one specific business concern, contact your malpractice insurance carrier well in advance of closing. The purpose is to begin the process of learning about the options for obtaining an extended reporting endorsement (ERE - more commonly referred to as a “tail policy”).  This endorsement is not a new policy.  It simply provides an attorney the right to report claims to the insurer after a policy has expired or been cancelled.  Again, it is important to note that under most ERE provisions the purchase of the endorsement is not one of additional coverage or of a separate and distinct policy.  This means no coverage will be available for a wrongful act that takes place during the time the ERE is in effect.  So if a claim arises several years post retirement out of work done in retirement, for example writing a will as a favor for a friend, there would be no coverage for that claim under the ERE.  That’s worth remembering.

As a risk manager, this question is the one question I’m asked more than any other and I get it. Although my wife is a physician, she had to deal with the same issue. We were paying to store her closed files for years after she left private practice and we both breathed a sigh of relief when that last bill finally came. Truth be told, however, the answer to this question isn’t a simple one; but it is manageable and it begins with determining when any given file can be destroyed.

While guidelines and ethical opinions, formal or otherwise, differ and you should always check with the powers that be in the jurisdiction in which you practice, most recommend a retention period of seven to ten years. Speaking as a risk manager for a malpractice insurance company, I lean toward the shorter end of this window and feel comfortable with the seven-year time frame. So if seven years have not yet passed, keep the file.

I will share that I have worked with a few firms that have far more aggressive destruction practices, several of whom destroy all files within several months to one year of being closed. I strongly advise against doing something similar if for no other reason than if a malpractice claim were ever to arise, you would have no file with which to defend yourself. That’s not a position you ever want to find yourself in. Trust me on that one.

Unfortunately, once the seven years, or whatever the number of years you set as your retention period, have passed on any given file you still may not be able to destroy it. As with so many rules, there are exceptions that require an additional amount of storage time. These exceptions include but are not necessarily limited to the following:

• Files on which the malpractice statute of limitation has not yet run (and don’t forget about the doctrine of continuous representation which can toll these statutes);
• Files involving a client who was and still is a minor even though the end of your general file retention period has been reached;
• Estate plans for clients who still are alive;
• Files that contain agreements that have yet to be executed or have not been fully paid off even though the end of your general file retention period has been reached;
• Files that establish the tax basis of one or more client assets;
• Adoption files;
• Support or custody files with continuing support obligations;
• Files with renewable judgments;
• Corporate books and records of active client entities;
• Files of clients convicted of a capital crime; and
• Files of certain “problem clients.”

In a perfect world, and with the above exceptions in mind, every file should have been given a destruction date or a review for destruction date when the file was first closed. If that didn’t occur, keep these exceptions in mind as you now seek to determine which files can and which files can’t be destroyed.

I would also recommend that as files are pulled for destruction, one final file review occur. This final file review process is intended to prevent a file from being prematurely destroyed and also assures that any remaining documents in these files that should not be destroyed are preserved. When any given file was first closed, you should have separated out all of the original documents that belonged to the client and returned them at that time. If that didn’t happen, make sure that it occurs during this final pre-destruction review. You are trying to identify and preserve the following: documents that clearly or probably belong to the client; all original documents; any other documents that the client may need or reasonably might expect his lawyer to preserve; and every file’s letter of closure. The letter of closure is an important document to retain because it can help clarify whether or not a conflict of interest is in play later on. If closure letters are destroyed, you take away your ability to provide documentation that an inactive client is actually a past client under Rule 1.9 of the Rules of Professional Conduct, also known as the “Former Client” Rule.

To varying degrees in most jurisdictions, the file is viewed as client property. This means that client awareness of and permission to destroy their property is necessary. If your clients were not informed of your file retention and destruction policy at the time their file was closed, you should try to contact them now in order to see if they want their file. While some attorneys try sending letters to the last known addresses of these clients, on older files this approach often proves less than fruitful. In light of the problem of trying to locate clients on files closed years ago, many firms now place in their engagement and/or closure letters a short paragraph that discusses the firm’s file retention policy as a way to solve the problem at least on a going forward basis. If you wish to do something similar I can offer the following sample file retention language.

I have enclosed your original documents as I no longer need to keep them and I thought you would want them for your records.  It is our firm’s practice to destroy files [number of] years after we close them.  If you would like us to return your file to you [number of] years from now instead of destroying it, please send me a note to that effect within the next thirty days so that we can segregate your file from all our other files and accommodate your request.  You will need to be responsible for keeping us informed as to how to reach you should your contact information ever change.

If you find yourself needing to send past clients a letter years after closing their files, you might consider designing a letter based upon this sample language.

Our policy is to destroy files [number of] years after they are closed. We have retained your file for that period of time and are now preparing to have it destroyed. If your desire is to have our firm continue to store it or see that it is returned to you, you must send me a letter telling us of your desire and this must be done no later than ten days after the date you receive this letter.

Once you determine which files can be destroyed, please follow through and see that these files are properly destroyed. “Destruction” does not mean tossing all the old files in a dumpster out back and, yes, this does need to be said. Take the necessary steps to have old files incinerated or shredded. You cannot compromise your client’s confidences, even during the file destruction process.

The final step in all this is to create and keep an inventory of the final disposition of all files. At a minimum you want to track the client name, file matter, method of disposition (destroyed, returned), and date of disposition.

Now, one side note. I am finding that some firms have decided to more or less keep client files indefinitely because virtual storage is so cheap. They will scan, then destroy the hard copy and keep the digital copy. On the surface this may seem like an easy answer but remember that as computer hardware and related storage devices are replaced over the years, the digital data on these devices must still be reviewed in order to ensure that certain data isn’t prematurely lost. Once that’s been accomplished, make certain to follow through on properly destroying your digital files. You can’t just give this stuff away or recycle it without wiping the data off the drives. The bottom-line is that the issues remain the same regardless of whether your files are paper or virtual.  That’s how I see it anyway. 

Just as with small businesses in every business sector, small law firms have widely varying outcomes in terms of business longevity.  Over the years, I’ve worked with a few small firms that have been in existence for decades and others that have come and gone in a few short years.  For most small firms, regardless of the length of time they’ve been in existence, a day will eventually come when the front door is closed for the final time.  Unless some financial planning has occurred in advance of this day, however, the lawyer or lawyers left standing as this auspicious day approaches may be about to discover they’re in a coverage trap.  Let me explain.

It’s not uncommon to find that in the later stages of a small firm’s life, partners have begun to retire or move on, while also choosing to forgo obtaining tail coverage.  The rational for such a decision is this. Former attorney language in the firm’s malpractice policy will provide all the coverage they need.  Of course, there is an assumption the firm will maintain continuous coverage over the years post departure; but what if these departures are what precipitates the eventual downfall of the firm a year or so later?

In other situations, departures aren’t the driver.  It might be financial struggles, disharmony among the partners, the death or long-term disability of a rainmaker, burnout, and the list goes on.  Regardless of the reasons, in the weeks and months leading up to the dissolution of a firm, the remaining lawyer or lawyers will begin to make inquiries into the availability of tail coverage.  Unfortunately, they are sometimes caught off guard when they learn the premium for such coverage is due upfront and the cost for a tail that goes beyond just a year or two is higher than anticipated.  This is a coverage trap because too many times the financial wherewithal to cover the expense of putting a tail in place simply isn’t there; and now everyone, to include any lawyers who recently departed, may be facing a future with no coverage for their prior acts.

Thankfully, steps can be taken to avoid the problem.  It could be as simple as establishing a designated malpractice insurance premium savings account that includes earmarking funds for the eventual purchase of tail coverage.  If lawyers begin departing a firm in anticipation of a possible closure, perhaps they should be asked to contribute to this savings account some portion of the estimated cost of purchasing a tail.

The point I’m trying to make is that oft times small firms fail to develop a plan for an eventual winding up of the business.  In my mind, that’s a business planning misstep that can have all kinds of consequences, not the least of which is ultimately having to deal with tail coverage trap.  Learn from the business planning missteps of others.  If your firm has yet to start such a plan, now’s the time. 

Occasionally a lawyer will reach out to me wanting clarification on what should be covered in a letter notifying active clients, whose matters the lawyer will be unable to complete in time, that she is closing her practice.  Here’s my response.

Ordinarily these letters will inform each client of any relevant time limitations or time frames that are in play, provide instructions as to how and where they may obtain a copy of their file, and advise them to find a new attorney as quickly as possible.  In addition, it’s vitally important that you make sure every client is fully informed about the current status of their matter, to include setting forth what yet needs to be done and what the legal ramifications might be if they fail to follow through.

After having covered the risk management priorities, I’ll go on to share that an offer to assist these clients in finding a new attorney by providing a few names or the phone number to a local lawyer referral service would be appropriate, that she shouldn’t overlook the importance of setting forth her file retention policy, and that she might want to provide post closure contact information in the event anyone ever needs a copy of their file at some later point in time.  Finally, I’ll remind her of the importance of sending a second follow-up letter that provides a full accounting of client funds remaining in the trust account and/or a statement of fees owed by the client.

With the above in mind, here’s some sample language that can serve as a place to start should you ever need to write your own closing the practice letter. Perhaps this will prove useful to you at some point. 

{Date}

Re: {Identify the specific matter}

Dear {Client name},

Due to {Identify the reason, if appropriate} I will be closing my law practice effective {Date}, which means my representation of you will conclude on that date.  Since I will be unable to bring your matter to a conclusion prior to leaving the practice of law, I recommend that you immediately seek to hire another lawyer who can step in and see your matter through to completion.  While you are free to select any lawyer of your choosing, if helpful, I would be happy to provide you with a few names of local lawyers who practice in the area of law your matter requires.  Also, our State Bar Association operates a lawyer referral service.  If you have any interest in checking with them, their number is {Insert number}.

In light of {Insert the current status of the matter to include notification of any time limitations and any other critical information the client needs to be aware of.}, it is imperative that you hire a new lawyer without delay.  Given that {Set forth what yet needs to be done.}, a failure to do so could result in {State what the legal ramifications might be if the client fails to follow through.} Finally, once retained, you will need to provide me written authority to transfer a copy of your file to your new lawyer; or if you prefer, you may stop by my office to pick up your file, which will allow you to personally deliver it to your new lawyer.

I {or insert the name of the lawyer or firm who will} will continue to store my copy of your closed file for {List period} years.  After that time, I {or name of lawyer or firm who will} will destroy my copy of your closed file unless you notify me in writing within the next 30 days that you do not wish to have your closed file destroyed.  Once received, I will try to make alternative arrangements that will better meet your needs.  If a copy of your closed file is ever needed prior to its being destroyed, you may reach me {or name of lawyer or firm storing the file} at {Insert number}.

Within the next {Number} weeks, I will be providing you with a full accounting of any trust account funds still in my possession as well as a statement of the amount of my fees that remain outstanding.

You will still be able to reach me at my regular office address and phone number until {Date}. After that time, my contact information will be {List name, address, phone, and/or email}.

It has been a pleasure to be of service to you and please don’t hesitate to check back with me if you have any additional questions or concerns.

Sincerely, 

Executive Summary: Law Practice Succession Planning Guide

Introduction

The "Law Practice Succession Planning Guide" by E. William Harvit and Anthony Mazelon is an essential resource aimed at single practitioners and small law firms. This guide focuses on immediate short-term actions and long-term planning to ensure the seamless transition of a law practice. It also includes a sample Law Practice Succession Planning Agreement to help initiate the process​​.

Immediate Short-Term Actions

The first part of this guide addresses immediate short-term actions that lawyers should take to protect their clients, themselves, their heirs, and others in the event of unexpected circumstances such as death, disability, retirement, or other unanticipated events.

• Preparing and Informing a Successor Attorney: Once appointed, you will need to make available all necessary information that will allow your successor to fulfill his or her duties and responsibilities.
• Preparing and Informing Your Clients: Consider sharing that a successor attorney has been named with your clients as a way to maintain their trust and ensure the smooth transfer of their cases, should that ever become necessary.
• Notice to Liability Insurance Carrier and State Bar Association: Consider providing notice to your state bar association and malpractice insurer so they know who to contact or work with in the event of an unexpected event.
• File Retention and Disposal: Establish a file retention and destruction policy that complies with your ethical obligations.
• Disposing of Client Funds or Property: Instructions for handling client funds and property should be prepared in order to prevent any legal complications.
• Extended Reporting Endorsement (Tail Coverage): Make sure that information concerning your wishes regarding tail coverage and instructions as to how to put it in place are readily available to your successor.
• Provisions for Last Will and Testament: Including specific provisions in your will regarding your succession plan can provide clear guidance and prevent disputes.​​

Long-Term Succession/Exit Planning

The second part of this guide focuses on long-term planning, which can help preserve wealth for you and your heirs​​.

• Assembling a Team: A comprehensive succession plan should include advice from experts in law firm valuation, financial planning, estate planning, tax planning, and insurance. Each team member should have experience working with law firms to ensure a tailored and effective plan​​.
• Law Firm Valuation: The valuation of your firm is a critical first step in the long-term planning process. Accurate valuation is important for retirement, estate, and tax planning, and is essential for equity offerings and structuring deals. Professionals such as CPAs, appraisal firms, and exit planning consultants can provide valuations​​.
• Methods for Calculating Value: Different methods can be used to calculate the value of a law firm. Factors such as recurring revenue, geographical location, profitability, and established goodwill play significant roles in determining a firm's value​​.
• Finding a “Buyer” and Financing Options: Identifying potential buyers and exploring financing options are essential for a successful transition. Transparency and thorough documentation of your firm’s financial and operational details can attract buyers and facilitate the process​​.

Conclusion

This guide emphasizes that succession and exit planning is a process rather than an event that often requires considerable time and effort to put a comprehensive plan in place. By following the guidelines and utilizing the sample agreement provided, you can take steps to help ensure that your practice is successfully transitioned, preserving its value for your benefit and that of your heirs​​. Take this necessary step so you can protect your clients, your practice, and your legacy.

Key Takeaways

• Start Early: Long-term planning should begin well in advance to allow for an orderly transition.
• Comprehensive Team: Assemble a team of experts with experience in law firm operations.
• Transparent Valuation: Obtain a thorough and transparent valuation of your firm.
• Client Communication: Keep clients informed to maintain trust and continuity.
• Insurance and Legal Compliance: Ensure all necessary notifications and insurance coverages are in place.
• Sample Agreement: Use the sample Law Practice Succession Planning Agreement as a starting point to customize a plan suited to your specific circumstances.

A solo attorney recently reached out wanting to know how to select a backup attorney. Having now addressed his concerns, I thought it would be worthwhile to share my answer for the benefit of others who may have similar questions. Here’s what I had to say.

I see the process of selecting a backup attorney and a successor attorney as being one in the same because for most solos, one individual often agrees to serve in both roles. In light of the responsibilities every backup/successor attorney may need to fulfil, you will want to look for someone who is competent and experienced in your areas of practice and also who is not likely to have a significant number of conflict concerns arise as a result of having to step into either role. Of course, this person should have the time, or the ability to make the time, to assume something of an additional practice for short periods of time. When the process is completed, don’t overlook the importance of making certain appropriate employees are aware of who you’ve selected as your designated backup/successor attorney and how they can contact this individual in the event of an emergency.

It’s important to note that the role of a backup attorney is to cover for you during short absences, such as a vacation or a medical emergency of some sort; and the role of a successor attorney is to take on the responsibility of winding down your practice. Neither role is charged with taking on the responsibilities of running of a second practice long term. This understanding can help make the process of finding someone willing to serve a bit easier, particularly if an agreement to serve in this capacity is reciprocal.

Beyond designating a backup/successor attorney, there are several other things every solo attorney should do as part of this process. Prioritize maintaining a current office procedures manual that discusses the calendaring system, conflict system, active file list, open and closed file systems, accounting system, and any other key system as this can be valuable in expeditiously bringing the designated attorney up to speed on how your practice is run. Most importantly, keep critical systems such as the calendar and conflict systems current at all times, and make certain that all files are thoroughly documented and current kept as to their status. The reason is the designated attorney will need to review your files and mistakes can and will be made with poorly documented and/or incomplete files.

Finally, consider providing notice of the existence of and reason for a designated attorney in your fee agreements so that clients are aware of the steps you have taken to protect their interests in the event of an emergency. Such notice might read as follows:

Succession Planning/Backup Attorney Notice:

While I strive to deliver excellent legal services to each and every client, I also have an ethical obligation to protect your interests during any extended absences, such as a vacation, an illness, or in the event of my unexpected death or disability. To accomplish this, I have named [insert name] as my backup attorney who will be available during any extended absences or will step in to assist in the closing of my practice should that ever prove necessary. I will personally provide you advance notice of any planned absences and my office staff or backup attorney will contact you with information on how to proceed should any unexpected event ever occur.

In the middle of a conversation with one of our insureds on the topic of the difficulty of learning to say no, the fine gentleman I was conversing with did a jump shift on me. For whatever reason, he felt it was important to acknowledge that he was cognizant of his age, and he wanted me to know he had taken steps to make sure he continues to practice law competently. What really struck me, however, was his desire to also share he had instructed others at his firm to let him know if they were to ever see him start to mentally slip, because in his words “the day will come when…”

As a risk manager, I found his comments reassuring. In my mind, he’s one I would describe as someone who is growing old gracefully. He’s not in denial and, unlike far too many, he doesn’t appear to be fighting the aging process tooth and nail. He also has recognized that with age comes certain age-related risks and he’s doing something about that reality. In light of this conversation, I felt compelled to take a look at a few of these risks and talk about how to responsibly manage them.

The most obvious risk with the aging process is the unexpected event, something along the lines of a medical crisis that leads to a short or long-term absence. Should this ever occur, someone will need to step in and at least temporarily accept responsibility for your client matters, even if you aren’t in a solo practice. For the solo practitioner, however, this is a particularly significant issue that underscores the necessity of having a backup attorney in place. Regardless of your age, if you haven’t already found one, now’s the time.

Next, don’t overlook the related file status problem. Lawyers don’t always keep files as current as they should. I believe for many it’s a time and trust thing. There’s never enough time and just about everyone trusts their own memory. Here’s the problem with that line of thinking. Memory isn’t as trustworthy as one ages and if you’re not available due to an unexpected event, it doesn’t matter anyway. Given this, committing to keeping the status of all files current at all times is equally necessary regardless of your practice setting.

Then there are the subtler risks that arise as a result of the aging process itself, many of which can be quite gradual. Sooner or later, everyone begins to realize their memory, hearing, and/or sight isn’t as sharp as it once was. I’ve heard all kinds of stories and fears. Some lawyers find they have a hard time accurately seeing everything on a computer screen, which leads them to worry about making mistakes due to incorrectly entering a critical date or misreading what’s on the screen. Others struggle with forgetfulness, worrying that it’s only a matter of time before they’ll fail to show up at a hearing, miss a filing deadline, or incorrectly remember what a client’s instructions were. And yet others have shared they have all kinds of fears about their hearing loss, not the least of which is a fear of mishearing something due to being too embarrassed to ask a client or a judge to repeat what was just said.

There are any number of steps one might take to address these subtle risks. In terms of competency issues, the use of checklists can be a great way to make sure nothing is overlooked. Additional training on how to get the most out of your computer tech might become necessary, if for no other reason than as tech evolves so does the standard of care. You might consider prioritizing the pursuit of relevant CLE in the areas in which you wish to continue to practice. Think about it. Just because you’ve practiced in a given practice area for several decades doesn’t mean you can ignore your obligation to remain current on the impact of any recent changes in relevant law or regulations. And finally, be open to acknowledging that at some point you may need to start slowing down because the time and energy necessary to stay on top of it all is no longer there. When that day comes, this might mean taking on fewer matters or no longer taking on certain types of matters.

With visual issues, the purchase of a bigger monitor or having IT adjust your screen settings might solve the problem. With hearing, it might mean finding time to have your hearing checked. My point with all these ideas is to encourage lawyers to find a way to work the problem of age-related risks instead of ignoring it.

A final risk worth mentioning is the comfort that can arise in long-term attorney/client relationships. Two points to make. First, it’s important to remember that these long-term clients are aging as well. As clients age, their legal needs will also change. In some way we’ve come full circle here. It can be hard to say no to these clients; but that may be exactly what’s called for. Don’t allow long-term clients to push you into agreeing to help them on matters you have no real experience in. Either refer this work out or do whatever is necessary to come up to speed. Anything short of this is asking for trouble. Second, don’t turn a blind eye to the possibility that forgetfulness or confusion may be in play with some of your older long-term clients. Take whatever amount of time is necessary to make certain these folks understand the advice being given and couple that with a commitment to thoroughly documenting your files, focusing not only on the advice being given but the decision-making process as well.

In sum, since no one has found a way to stop the aging process, the day will come when it’s time to cease practicing law. Until that day arrives, however, do all you can to age gracefully. Be aware of your limitations as they arise and be open to hearing the concerns of others. Find ways to identify your specific risks and work to responsibly address them. I say this because I have had to sit down with a few solos over the years and be the one who had to tell them their time had come. Trust me, aging gracefully is the better choice.

To this day I still get the occasional call from an attorney wanting to know how to go about purchasing a tail policy and my response is always the same. I need to make sure that the caller understands there really is no such thing as a tail “policy.” Clarification on this point is important because confusion over what a tail is and isn’t can have serious repercussions down the road. To make sure you don’t end up running with any similar misperceptions, here’s what you need to know.

An attorney leaving the practice of law can’t purchase a malpractice insurance policy because he or she will no longer be actively practicing law. There simply is no practice to insure. This is why an attorney can’t buy a tail “policy.” What you are actually purchasing when you buy a tail is an extended reporting endorsement (ERE). This endorsement attaches to the final policy that is in force at the time of your departure from the practice of law. In short, purchasing an ERE, which is commonly referred to as tail coverage, provides an attorney the right to report claims to the insurer after the final policy has expired or been cancelled.

Again, under most ERE provisions, the purchase of this endorsement is not one of additional coverage or of a separate and distinct policy. The significance of this is that under an ERE there would be no coverage available for any act, error, or omission that occurs during the time the ERE is in effect. So for example, if a claim were to arise several years post retirement out of work done in retirement as a favor for a friend, there would be no coverage for that claim under the ERE. This is why you hear risk managers say things like never write a will for someone while in retirement. I know it can be tempting, but don’t practice a little law on the side in retirement because your tail coverage will not cover any of that work.

Another often misunderstood aspect of tail coverage arises when an attorney semi-retires and makes a decision to purchase a policy with reduced limits in order to save a little money during the last few years of practice. The problem with this decision is that insurance companies will not allow attorneys to bump up policy limits on the eve of a full retirement, again, because no new policy will be issued. For many attorneys, this means the premium savings that came with the reduced limits on the final policy or two will turn out not to have been worth it and here’s why. All claims reported under the ERE will be subject to the available remaining limits of the final policy that was in force at retirement and this may not be enough coverage.

By way of example, if you were to reduce your coverage limits from one million per occurrence/three million aggregate to five hundred thousand per occurrence/five hundred thousand aggregate during the last year or two of active practice in order to save a little money, you will only have coverage of five hundred thousand per occurrence/five hundred thousand aggregate available to you for all of your retirement years assuming there was no loss payout under that final policy. In terms of peace of mind, for many that would be an insufficient amount of coverage. Therefore, if you anticipate wanting those higher limits of one million/three million during your retirement years, keep those limits in place heading into retirement.

Unfortunately, while many attorneys hope to obtain an ERE at the end of their career, the availability of tail coverage isn’t necessarily a given. For example, most insurers prohibit any insured from purchasing tail coverage when an existing policy is canceled for nonpayment of premium or if the insured failed to reimburse the insurance company for deductible amounts paid on prior claims. An attorney’s failure to comply with the terms and conditions of the policy; the suspension, revocation, or surrender of an insured’s license to practice law; and an insured’s decision to cancel the policy or allow coverage to lapse may also create an availability problem.

An attorney’s practice setting is also relevant. Particularly for retiring solo practitioners, insurers frequently provide tail coverage at no additional cost to the insured if the attorney has been continuously insured with the same insurer for a stated number of years. Given that tail coverage can be quite expensive, shopping around for the cheapest insurance rates in the later years of one’s practice isn’t a good idea as the opportunity to obtain a free tail could be lost. Review policy provisions or talk with your carrier well in advance of contemplating retirement in order not to unintentionally lose this valuable benefit.

The situation for an attorney who has been in practice at a multi-member firm is a bit different. Here, when an attorney wishes to retire, leave the profession, or is considering a lateral move and worried about the stability of the about-to-bedeparted firm, some insurance companies will not offer an opportunity to purchase an ERE due to policy provisions. The reason is the firm’s existing policy will continue to be in force post attorney departure. This isn’t as much of a problem at it might seem in that the departing attorney will be able to rely on former attorney language under the definition of insured. However, because the definition of insured varies among insurers, you should discuss this issue with your firm’s malpractice insurance representative so options can be identified and reviewed well in advance of any planned departure. That said, I can share that under two ALPS policies and as long as certain conditions are met, we provide some of the most comprehensive tail coverage options in the industry, to include free individual EREs in event of retirement, death, disability or a call to active military service.

Be aware that the period in which one can obtain an ERE can be quite limited. Most policies provide a 30-day or shorter window that will start to run on the effective date of the expiration or cancellation of the final policy. There are even a few very restrictive policies in the market that require the insured to exercise the option to purchase an ERE on the date of cancellation or expiration. Given this, you should review relevant policy language well in advance of contemplating departing the profession as the opportunity to purchase an ERE is one you can’t afford to miss.

The duration of tail coverage or more accurately the length of time under which a claim may be reported under an ERE varies depending upon what is purchased. Coverage is generally available with a fixed or renewable one, two, three, four, or five-year reporting periods or with an unlimited reporting period. If available to you, the unlimited reporting period would be the most desirable, particularly for practitioners who have written wills during their later years of practice.

The premium charge for an ERE is usually specified in the policy. Often the cost is a fixed percentage of the final policy’s premium and can range from 100% to 300% depending on the duration of the purchased ERE.

Given all of the above, if the ERE provisions outlined in your policy language have never been reviewed, now’s the time. One final thought, be aware that if the unexpected ever happens such as the sudden and untimely death of an attorney still in practice, know that tail coverage can be obtained in the name of the deceased attorney’s estate if timely pursued in accordance with policy provisions. This is why even attorneys who are not nearing retirement should still have some basic awareness of ERE policy provisions because one just never knows.

The term “of counsel” has multiple meanings. It has been used as an honorary designation for retired partners, a special designation for firm attorneys who are neither a partner nor an associate, and to describe part-time attorneys who have created an association with a firm. Some even try to use the term solely for advertising purposes. After all, the public presentation of close ties with another firm might prove to be an effective marketing tool that could help drive additional business to a firm, right? Setting ethics aside for a moment, maybe, but there are risks that come into play with use of the term and these risks should not be taken lightly.

What is an of counsel attorney?

The “of counsel” designation, as envisioned by the authors of various ethics opinions around the country, refers to something altogether different from a traditional attorney within a firm. These opinions generally define the term “of counsel” as an attorney who is not a partner, associate, shareholder, or member of a firm, and further state that an attorney may only be designated “of counsel” to a firm if the attorney will have a close and continuing relationship with that firm. Thus, any attorney who works at a firm and has a significant degree of shared liability with that firm or has any managerial responsibilities to that firm and/or its staff should never be designated as “of counsel”. And be aware that related terms such as “special counsel”, “tax counsel”, “senior counsel,” and the like are understood to have the same meaning as “of counsel” and thus the requirement of a close and continuing relationship will apply here as well.

Okay, so what constitutes a close and continuing relationship?

The requirement of a close and continuing relationship has been defined as providing for close, ongoing, regular, and frequent contact for the purpose of consultation and advice. Further, the of counsel attorney must be more than an advisor on only one case or just a forwarder or receiver of legal business. Now you know why attorneys sometimes find themselves in ethical hot water after designating an attorney, whose sole role is to act as a referral source, as “of counsel” to a firm. Use of the term in this manner is considered to be a misleading client communication.

Who can properly be designated “of counsel?”

Evaluating the appropriateness of the designation in the light of what a disciplinary committee could perceive as misleading can help one avoid some of the common “of counsel” designation pitfalls. In short, any attorney contemplating being listed on another firm’s letterhead as of counsel, should only do so if he or she is truly able to be available and committed to providing counsel to that firm. Examples of acceptable relationships for the “of counsel” designation have included but are not limited to 1) retired lawyers, 2) withdrawing partners or associates, 3) part-time practitioners, 4) permanent non-partner/non-associates, 5) partners on leave, and 6) probationary partners-to-be. Examples of unacceptable relationships for the “of counsel” designation have included but are not limited to 1) outside consultants, 2) suspended lawyers, 3) when the affiliation involves only a single case, 4) those who merely share office space and nothing more, and 5) public officials who are not engaged in active practice with their former firm.

Can a law firm be of counsel to another firm? Can an attorney be of counsel to more than one firm? Can an attorney be of counsel to an out-of-state firm?

While the answers to questions such as these can be yes, the reality is that the answers to these questions and a number of others will differ depending upon the jurisdiction in which you practice. Given the numerous and varying state specific rules regarding this designation, best practices would dictate that prior to establishing any of counsel relationship you review any relevant ethics opinions and/or contact bar counsel in your jurisdiction.

What are the risks?

There are a few issues of concern with of counsel affiliations. In particular, imputed disqualification, vicarious liability, insurance coverage disputes, and disputes over the terms of the relationship warrant special attention.

Imputed Disqualification - For conflict purposes the of counsel affiliation means that the affiliated firm and the of counsel attorney will often be treated as one entity. This does mean that the conflicts the of counsel attorney brings to the table may prevent the affiliated firm from continuing to represent current or future clients. Likewise, the of counsel attorney must be concerned about apparent or actual conflicts between his own clients and those of the affiliated firm. The imputed disqualification rule is a two-way street and there is little that can be done to correct the problem once it has arisen. Conflict checks can be burdensome and the potential cost in lost business if a conflict is ever missed can be substantial. Always address the conflict issue prior to establishing of counsel relationships so that everyone understands what the additional burden will be and can agree that the benefits outweigh the costs.

Vicarious Liability - While the affiliated firm is not going to be liable for the independent acts, errors, and omissions of the of counsel attorney that were outside of the apparent scope of the of counsel attorney’s involvement with the affiliated firm, this doesn’t prevent claims from arising. Problems can and will arise based upon any given client’s perspective of the affiliation. Unrestrictive use of letterhead listing the of counsel attorney by the affiliated firm or the of counsel attorney sends the message that all participants are involved on any and all matters of the firm and/or the of counsel attorney even if this isn’t the case. To help avoid becoming a named co-defendant in each other’s suits, create two versions of letterhead. One will list the of counsel attorney and the other will not. Then only use letterhead showing the of counsel attorney’s name when that attorney is actually working on a firm matter. Likewise, make sure that the of counsel attorney abides by the same rule.

Insurance Coverage Disputes - In the unfortunate event of a claim, coverage problems can arise when an affiliated firm has done work on a matter that the of counsel attorney had no involvement in or awareness of but was unfortunately listed as “of counsel” on the letterhead that was in use. Should this of counsel attorney not have coverage under the affiliated firm’s malpractice policy there may be a significant problem because the of counsel attorney’s own policy will often not afford coverage either. Why is this? The of counsel attorney’s own policy will only cover work done on behalf of clients of the named insured which is the of counsel attorney’s own firm. In this situation the of counsel attorney would be facing a claim that arose out of work done for a client of the affiliated firm thus the coverage gap. These sorts of “who is the client,” “who is the attorney of record,” and “who is the named insured” are common challenges that underscore the necessity of investigating and addressing the insurance coverage issues early on. Appropriate coverage for the exposures of both the affiliated firm and the of counsel attorney can usually be obtained if the issue is addressed at the outset.

Disputes Over the Terms of the Relationship – The best way to mitigate this risk is to have a written and signed of counsel agreement because reasonable minds can disagree, and memories can be short. Always have a written agreement that at least covers the essentials, which would include setting forth the purpose of the relationship, the duties of the of counsel attorney, any limitation of authority, the compensation plan, how overhead and any fringe benefits will be handled, and the termination and dispute resolution procedures.

Closing Thoughts

Beyond the above, the best risk management advice I can give regarding of counsel relationships is to encourage every attorney considering entering into an of counsel relationship to always keep in mind joint accountability. Of counsel relationships can be quite valuable, but clients will rightly respond to these affiliations as if they represent a single entity. Mutual accountability will be in play, particularly when a client is directly involved with both parties to the of counsel affiliation. Here’s the bottom line. Of counsel relationships can be quite beneficial as long as they are created with client interests in mind as opposed to being the latest new marketing strategy. In light of all the above, that’s simply never going to be a good idea.