Recently a lawyer in his late 60s called me to discuss his future. At one point he had considered selling his practice and retiring. But, he said, he enjoys what he does and financially cannot see his way to retiring. In the end, because of his tax situation, he declined to sell his practice.
I found this lawyer's decision interesting in light of the prediction made a few years ago by the then-head of the American Bar Association that by 2020 (or perhaps sooner), 400,000 lawyers would retire. Those numbers may be correct, but it increasingly looks like the timing may not be. Because leaving the practice of law is not a simple process or an easy decision or financially feasible after the financial crises we've suffered, more lawyers than expected will likely stay in practice longer than expected.
If retirement is even remotely an option for a lawyer, there is no time like now to begin preparing for it – whenever it happens. Begin consulting with experts now on such issues as practice valuation, tax planning (both estate and capital gains) and future personal life planning. To some extent, this is the equivalent of an estate plan that provides for financial security after leaving practice. However, structuring insurance, preparing a will, structuring your tax liability and designating a practice conservator – all essential elements of a practice estate plan – are just part of a planning continuum.
The next related element is a succession plan. If the practice is not sold, the best succession alternative is grooming a successor brought on board as an associate or a lateral partner. Ideally this succession plan can be structured to transition over a period of up to five years, as client responsibilities gradually transition to the new lawyer. During this period there can be ongoing conversations with key clients about the upcoming transition, an opportunity to forge new ties between the successor and both current and new contacts at the client, and sufficient planning to assure that the new lawyer is completely up to speed on what the client needs and expects. Preparing for this kind of smooth transition can ease problems over the issue of goodwill when the time comes to turn the practice over to a successor.
The issue of valuation also comes up in a slightly different context. What if, after the passage of some time, the successor lawyer(s) believe he/she/they helped create the goodwill value … and shouldn't have to pay for what they helped create? Or, what if they have become so bonded with the clients that they believe they can "walk across the street," start a new practice and take these clients without paying you anything for the firm goodwill?
Then there is the practical need for a retirement plan. The focus is not on practice management or on material assets – instead, it is on personal satisfaction, self-worth and well-being. All successful people are focused and passionate about what they do. If they want to pursue different interests, it is not that they wish to have a life of leisure – it reflects a greater desire to pursue their passion. When developing a retirement plan, ask yourself some questions. What do you want to do with your life once you leave practice? Do you want to quit working and retire, or start a new adventure? Can you achieve the same objective without leaving the practice of law?
Developing the answers takes time and consideration.
Leaving your current practice by retiring is an emotional process. You must want to do so, and a successful transition will require all the traits that defined your success as a lawyer: motivation, acceptance of risk, resiliency and commitment. Above all, planning is essential; and the time to start is now.
