Planning for Solo Professionals

Succession Issues for Solo Professionals.

Physicians, dentists, accountants, attorneys, etc. often practice alone –
‘solo’. Special planning is required in the event of your disability or
death, in order to protect your economic interests in your practice. The
half-life of your solo professional practice in your absence is short. Without
advanced planning the economic value you might receive if disabled, or your
heirs will receive upon your death, will evaporate. Your patients/clients may
be irreparably harmed if you don’t have a succession plan in place. If
another professional cannot step in quickly, a critical tax, court, or other
deadline could be missed. If patients/clients aren’t advised quickly to make
alternate arrangements, or if records cannot be transferred quickly, problems
can occur. While there are significant differences in succession planning
depending on the profession, the discussion below has important lessons for
solo practitioners in every profession.

Transitions to Plan for.

• Temporary Disability. If you are unable to practice for a few weeks or
  a few months as a result of illness, surgery or other matters, what happens
  to your patients/clients? What happens with your practice? You need to
  bridge your practice operations for this limited duration absence.
  Emergencies need to be tended to, but many matters, can be deferred until
  your return with proper communication. Bills need to be paid, but major
  financial decisions can often await your return. Failing to plan, however,
  can have catastrophic results. Patients/clients fearing the worst may
  simply leave. Reassurance from a covering professional may keep most or all
  of your practice intact.
• Permanent Disability. If you will not return for a long or indefinite
  duration, your practice probably should be sold (if feasible). This may
  best serve your patients/clients and preserve some economic benefit to you
  and your heirs. Your planning needs to address the dividing line between
  temporary and permanent disability. The line may also differ depending on
  how ‘solo’ you are. If you are truly solo, with no professional staff,
  the time period before the sale of your practice is much shorter than if
  you are ‘solo,’ as the only equity professional, but have associates
  that can maintain the practice for a longer period.
• Death. This is the contingency most often planned for because it is
  simpler to address — no definition issues as with “disability”, and if
  life insurance is affordable, the solution is easy. But you need more. Your
  patients/clients must be transitioned, charts/files returned, and if
  possible, your practice should be sold to provide your heirs some economic
  benefit from your years of work. This requires a succession plan, and
  generally an arrangement with another professional to assist through the
  transition.
• Retirement. An exit strategy needs to be developed years in advance of
  your proposed retirement. You could sell the practice to another
  practitioner, have an associate buy into the practice (often in some type
  of sweat-equity or salary reduction arrangement), sell the practice to a
  larger firm, or simply wind down the practice by transitioning
  patients/clients to other practitioners and limiting your work gradually to
  zero.
• Other Events. Suspension or revocation of your license will also
  destroy your practice. It still may, however, be feasible for your
  transition plan to treat this similar to a permanent disability, in which
  another licensed practitioner maintains your practice while it is
  liquidated (or if feasible, sold).

Special Issues Professionals Must Consider.

Succession planning for licensed professionals differs from planning for
other businesses. The expertise of another licensed professional (and often one
with the same specialization) may be required to transition your practice. In
many cases ethical restrictions of your profession will have to be addressed
with great care during the transition. For example, your durable power of
attorney that you prepared as part of a general estate plan may not suffice,
because your named agent may not be a similarly licensed professional and
can’t address practice succession. The ethical rules of your profession may
prohibit a non-licensed person from seeing practice records. While your agent
can hire a licensed professional to transition your practice, addressing this
issue directly is best. Patients/clients may own their charts/files and may
have to be returned which is a costly responsibility (e.g. for lawyers see ABA
Formal Opinion 92-369). Strict confidentiality rules make succession planning
more difficult. Malpractice coverage for your practice following your
disability or death, and the professional helping transition your practice,
could both require attention. If you had ‘Claims Made’ coverage, a tail
policy may have to be purchased once you are permanently disabled or in the
case of your death. Presumably if you are only temporarily disabled the
existing coverage would need to be continued. The professional helping
transition your practice also requires coverage. If this professional continues
to see patients/clients for their own practice, they need coverage for that.
But will their coverage also cover work they do for your practice? If not, will
your coverage provide protection for them? If neither of those is feasible
another policy may have to be procured.

Arrangements For Transition.

There are a myriad of ways to structure deals:

• Agreement with Colleague. A common approach for solos is to sign a
  simple arrangement with another independent practitioner. Often these are
  reciprocal – another solo needs a transition plan and agrees to cover
  you, if you cover her.
• Operating Agreement. If your practice is an LLC, a modified operating
  agreement can provide the transition for your practice. You can be the sole
  member (owner) and manager of the LLC. The agreement can list the powers of
  each. Then, in the event of your incapacity or death a successor manager
  can be named and the agreement can provide for the transition to your named
  successor as manager. This approach has the advantage that banks and others
  understand operating agreements, and the role of manager, so the authority
  given may be easier for the professional helping you out to implement.
• Agreement with an Associate. If you have an associate in your practice,
  his or her employment agreement, or a separate agreement, can be used to
  provide them with the authority to manage your practice during a
  transition.
• Consulting Agreement. You might create a more formal arrangement with
  another professional, even listing them on your letterhead, in the capacity
  as a consultant (“of counsel” for attorneys), and address succession in
  that agreement. An advantage of this approach is that your patients/clients
  will have seen the successor’s name well in advance of an issue arising.
  If this approach is used, verify with your malpractice carrier if any
  additional steps are required.
• Patient/Client Agreement. Any agreement that you provide
  patients/clients with might indicate that you have a succession arrangement
  in place that conforms with the requirements of your profession, and that
  the patient/client is agreeable to it.

Personal Documents.

Your power of attorney could expressly prohibit your general agent from
addressing practice issues and instead name a licensed professional to handle
practice matters. Alternatively, you could sign a personal power, in which you
preclude your agent from handling practice matters, and sign a separate power
in which you authorize a named licensed professional to manage your practice
during a transition. This could include express requirements of the
professional agent to abide by all applicable ethics rules, etc. The powers
given to the agent should address management during disability, and sale of the
practice if the disability becomes permanent. Your will should designate a
special fiduciary, not your general executor, to handle all practice matters,
including managing the practice and negotiating the sale of the practice.
Specific powers can be granted to facilitate this and the fiduciary should be
obligated to adhere to all confidentiality and other rules.