Planning for Solo Professionals

Succession Issues for
Solos:

Physicians, dentists, accountants,
attorneys, etc. often practice alone – “solo”. Special planning is required in
the event of your disability or death 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 if you die, 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 solos in every
profession.

Transitions to Plan for:

There are many events you
have to plan for:

o Temporary Disability: If
you are unable to practice for a few weeks or 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,
may with proper communication be deferred until your return. 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.

o 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, or 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 sale of your practice is the
appropriate option 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.

o Death: This is the
contingency most often planned for because its 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 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.

o 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.

o 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 so 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 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 may making succession planning more difficult.
Malpractice coverage for your practice following your disability or death, and the
professional helping transition your practice, may both require attention. If
you had claims made coverage a tail policy may have to be purchased once you
are permanently disabled or you die. Presumably if you are only temporarily
disabled the existing coverage would 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 not another policy may have to be
procured.

Arrangements For
Transition:

There are a myriad of ways to
structure deals:

o 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.

o 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.

o 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 the authority to
manage your practice during a transition.

o 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.

o Patient/Client Agreement:
Any agreement you provide patients/clients 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 which precludes your agent from handling practice matters, and
sign a separate power authorizing a named licensed professional the authority
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 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 ethical, confidentiality and other rules.