Closing time: Leaving or shuttering a law firm requires careful planning

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Attorneys spend their lives building their practices but probably do not spend enough time preparing to close them.

“Lawyers are great at telling everybody else how to plan,” said Lowell Sweet, a real estate and estate-planning attorney who spoke recently at the Wisconsin Solo & Small Firm conference about how to shutter solo and small firms. “We’re lousy at planning for ourselves.”

The topic is of growing interest as more attorneys reach retirement age. But some struggle with the process.

“Closing a practice means different things to different attorneys,” said Mark Petri, a retired attorney and member of the State Bar of Wisconsin’s Senior Lawyers Division.

Large firms, he said, typically have partnership or LLC agreements and continuing partners. Clients, Petri said, can stay with those firms.

“Medium-sized firms are maybe a little less formal, but there still will be a practice that continues when somebody retires,” he said. “In a solo or very small firm, the relationship is usually between one attorney and one client, and the issues are going be more complicated. But they have options.”

Planning is essential, not only for retirement income but also for the future of the practice.

For many, that starts with deciding when to retire.

“If all your cases are finished, yeah, it’s probably a good time,” said Sweet, who practiced in Elkhorn for 55 years before retiring in 2010.

But, he said, deciding to leave is just the beginning.

“Retiring while you’re in a firm is easier because you don’t have to send notices to your clients. The files are still going to stay at that firm,” Sweet said. “But if you’re a solo, you’ve got to notify people and give them an opportunity to pick up their files.”

Often, a letter is sufficient. It can make clear that if files are not been picked up in six to 12 months, they will be destroyed.

But attorneys should remember, Sweet said, that there is no statute of limitations on legal claims against attorneys, so they should make copies of files that give them pause.

“And I strongly recommend,” he said, “they buy a tail policy on their malpractice.”

A tail policy covers attorneys and their estates from any claims arising from their practice.

“In return for the insurance company taking on the liability,” Sweet said, “I pay them a premium, and I must agree to do no practice.”

Some lawyers bristle at the restriction, wondering if they’ll be able to resist the temptation to practice. But, Sweet said, it actually helps him, particularly when neighbors ask to pick his brain about legal questions.

“I would explain that I couldn’t answer questions because I would lose my insurance,” he said. “People accepted that. Their feelings weren’t hurt, and my sleep wasn’t interrupted.”

Client notifications and insurance considerations are among many items on the to-do list. For instance, Sweet said, attorneys should inform other business contacts as soon as possible about an impending retirement.

“Notify your suppliers so you don’t wind up with somebody charging you for office supplies you don’t need,” he said. “Notify your utility companies. If your employees are not retiring, I feel it should be a case of helping them find employment. If they’ve been loyal to you, the least you can do is be loyal to them.”

Part of preparing to leave practice is collecting outstanding debts. And, Sweet said, attorneys also should be careful to make final tax filings.

“I’m amazed how many lawyers forget to do that,” he said.

Solos also could consider letting another attorney take over, or buy out, their practices. Sweet suggested hiring an attorney to coordinate any buyout terms, including naming rights, particularly for small firms that will continue after an attorney retires.

“If your name is in the firm, are they going to keep your name in the firm title?” he said. “If they keep it in, one awkward thing that can happen is they get involved with something that you’re totally unhappy with. What do you do about that?”

There is a lot to consider, Petri said, but having a plan eases the burden.

“Lawyers, like everyone else, should have financial planning and security in mind,” he said, “really from the time they start practicing.”

That is part of the reason the Senior Lawyers Division, with about 1,500 members, encourages attorneys of all ages to attend workshops about retirement planning, tax planning, document retention and health care. That also is why the division included a seminar on financial planning, Social Security and Medicare at its May conference and is planning a session on estate, tax and retirement account planning for its next May conference.

“Those are really complicated issues for anybody,” Petri said, “even lawyers.”