By now you may be getting tired of hearing from us regarding how the legal profession needs to do more to address the phenomenon of aging in the workforce. In the last Senior Lawyer magazine (Summer/Fall 2019, Vol. 11, No. 1), we wrote about why so many solo practitioners find themselves unable to retire if they want to maintain anything close to their current standard of living.

In this article, we will focus on how and when you decide to wind down your law practice in the first place. We will also explore the various paths available to sole practitioners when developing a plan to downsize a law practice. I’ll lead off by identifying some of the early challenges you will face in winding down a law practice, and I’ll ask my co-author, Lenny Sienko, to share his practical experience and observations in dealing with each of these challenges.

Your Decision to Retire … or Not!

Stephen‘s Comments:

Most lawyers I speak with understand that developing an “Advance Exit Plan” for your law practice isa good idea. However, you could get the impression that most people put more thought into preparing for the family vacation—the transportation, the timing, the meals—than planning for retirement. No matter what your age, you probably are thinking that you are too young to start planning for winding down your law practice. It doesn’t have to be that way.

Since working past “normal” retirement age is one of the fastest growing trends in America, [1] we should look more closely into the options available to solos and small firm practices. Many sole practitioners have turned their backs on the traditional retirement model; i.e., you pick a date in the future when you decide to close down the law practice and walk away. Today, many lawyers love doing what they do and don’t want to stop. Others may need the money for any of a number of good reasons. Many people are also beginning to realize that they will be living in retirement much longer than ever anticipated.

The phenomenon sometimes called phased retirement [2] is becoming increasingly more common among many white-collar professionals. Phased retirement is thought to provide benefits to workers, employers, and the larger society. Unlike full retirement, phased retirement permits the worker to make adjustments for age-related changes in stamina or ability without sacrificing social networks, earnings, and a sense of being productive. A 2005 study by the AARP finds that nearly two in five workers age 50 and above would be interested in participating in a phased retirement plan.
Unfortunately, the legal profession has been slow to adopt phased retirement as an option for lawyers. We believe that with proper planning, phased retirement should serve aging sole practitioners as a better way to move away from full-time law practice. The journey from full-time work to full-time retirement in its traditional sense may take several years to accomplish, so at least a broad framework of planning will be helpful to move any plan forward. The best time to get started is now.

Lenny’s Comments:

I’m not certain if I’m currently into phased retirement; but I’m preparing for it. I reduced my hours by eliminating mornings. I always hated them, so I decided to not schedule any appointments until after lunch. Of course, I still do court appearances in the morning if called for, but cutting back on litigation also frees up time.

Limiting areas of practice is a natural way to ease or “phase” yourself into retirement. Most sole practitioners, especially in rural areas, start out as “door lawyers,” i.e., they take any case which walks in the door. As the years pass, we tend toward the work we enjoy and can make money at. I find concentrating on second home purchase and sale transactions, working at the office, is more efficient than driving hours for court appearances. Of course, this is from my perspective as a sole practitioner in a rural county, where the county courthouse is 40 miles north over two-lane roads. Your mileage may vary if you practice in an urban area with public transportation.

One issue with “phased retirement” is did you plan it with a strict schedule in mind? Can you stick to the plan? Or did you get “stuck” on the way out? I have a friend, a sole practitioner, who has been retiring for the last three years. His original plan was to be “retired” and out of the office in one year. He steadfastly maintains that he is “retired” but is just “finishing” some problem files he can’t leave for anyone else. If you want to phase out of the office and into retirement, I suggest adopting a strict schedule and sticking to it.

Ethical Issues Raised by Retirement

Stephen‘s Comments:

As you first begin thinking about how you might move away from full-time law practice, you need to pay attention to the ethical issues raised by retirement. In New York State “retirement from the practice of law” for Attorney Registration purposes occurs when an attorney, other than the performance of legal services without compensation, does not practice law and does not intend ever to engage in acts that constitute the practice of law [22 NYCRR 118.1(g)]. New York’s attorney registration system does not provide an “inactive” status for non-practicing attorneys, so in order to qualify as “retired” for the purpose of being exempt from the registration fees and CLE requirements, an attorney must no longer be practicing law for compensation in any jurisdiction. (See, e.g., Matter of Kahn, 28 AD3d 161 [1st Dep’t. 2006].)

It should also be done with the intention that this is a permanent decision. If you are planning on exploring a phased retirement, pay particular attention to the Judiciary Law and the Rules of the Chief Administrator, because they still require a retired attorney to maintain his or her attorney registration and timely submit the biennial registration form. Failure to comply with the registration requirements is conduct to be referred for disciplinary action (Judiciary Law 468-a [5] and 22 NYCRR 118.1[h]).

Lenny’s Comments:

I find it increasingly difficult to describe what I’m doing when asked, “Are you retired?” I certainly don’t want to run afoul of the ethical requirements; but I also don’t want to work as hard as I have in the past. I should rephrase that to: I want to work more efficiently, but I prefer to have some income.
I sometimes explain to those who are truly interested that I have come full circle in my professional life.

When I started in business 42 years ago, I couldn’t afford a secretary. I did my own typing. We still used carbon paper in those days, so I developed a writing style which minimized the possibility of having to retype everything. These days, I find I have come full circle, once again operating without a secretary. Computers and gadgets, including Ms. Siri, make it possible to produce my documents, run my office, on my own.

Paths You May Choose to Pursue

Stephen‘s Comments:

There are essentially five paths you may pursue in winding down your law practice. It is not uncommon to explore several of these paths at the same time; however, at some point in time, you may want to prioritize one path over the others. These paths include:

  1. Hiring and mentoring a young associate who could eventually buy into the practice
  2. Selling the practice
  3. Merging with another firm
  4. Forming an Of Counsel relationship with another lawyer or law firm
  5. Turning out the lights and closing the door.

1. Hiring and mentoring a young associate

It stands to reason that many practitioners have tried hiring young lawyers at some point over the years. Associate turnover at law firms is often as high as 25% annually. According to Thomson West, law firm turnover costs the legal industry nearly $1 billion annually. Firms spend time and money on-boarding associates, from recruiting to training, but must reinvest when another associate needs to be hired to replace one that left.

A friend recently shared his frustrations in trying to find that one perfect associate. He starts by telling me that, I would love to find someone to take over my practice. Several years ago, I had two young attorneys working with me and our revenue was over $1.2 million. If I still had two competent attorneys working with me, I am sure I could get it back to $1.2 million or more almost immediately.
He goes on to add, Why don’t people want to work anymore? Both of the guys who were working for me are doing quite well. By the end of this year, one of them is scheduled to become a partner with the attorney he went to work with. The other one who left the firm has already become a share-holder with one of the largest law firms in town—so he’s doing quite well. The two of them together have convinced me there is no reason for me to pay someone $200,000 a year for them to learn how to do what I do, only to leave with some of my clients after they became proficient. I’m sure there may be some sour grapes there, but I also am sure I don’t want to be a trainer anymore. Whoever decides the practice is good enough to buy, is going to need to be a proficient attorney. The problem is that all the proficient attorneys are already working or are with firms already.

Lenny’s Comment:

I saw the “associate problem” differently. I bought my office building and furnished it with the idea of bringing in a couple of associates and paralegals. I have desks and workstations for four secretaries and two associates, but I never filled them. Every time I’d find someone who I thought would be a “good fit,” they’d be off to the “bright lights and big city,” usually filling a government position with a secure salary and benefits. One can’t blame younger lawyers these day for seeking security as they must reduce risk and maximize earnings to make ends meet and pay back student loans, the likes of which our profession has never seen before.

In our locality, I’ve only seen the young associate staying on to take over the practice model work with small family firms. Son or daughter graduates from law school, passes the bar, and joins parent in the family business. The opposite is also common; i.e., son or daughter, having grown up watching a parent’s practice, wants no part of it, going off to work for a very large firm or the government.

2. Selling the law practice

Many hard-working attorneys believe that since they have worked their fingers to the bone for so many years, they must have a law practice which can be sold. This may be the case, but for many practitioners, this is a mistaken belief. Paradoxically, if you want to sell your law practice for the maximum amount of money, it needs to be set-up to thrive without you—so the next owner can continue to grow and profit from your hard work when you’re gone.

Lenny’s Comments:

Many of those hard-working attorneys will be dismayed to find that their law practice—cases and clients, suffer from liquidity problems. The sole practitioner/ small firm member does not benefit from the framework of the large firm, which has a life of its own. Ethical constraints prohibit “selling” clients or cases. The delicate dance of handing off files often results in the harsh realization that there is really nothing left to sell—except the building and equipment. Young lawyers with substantial student debt have neither the inclination nor capability of borrowing the sums necessary to buy out the building the sole practitioner finally owns “free and clear.” In these days of virtual offices, “bricks and mortar” are not as necessary as they once were, not as salable.

Recently, we have seen a hybrid type of “sale.” The larger firm from the nearby urban area asks the successful sole or small firm practitioner to join their firm “of counsel” or as “special counsel.” The practitioner does so “merging” with the larger firm, bringing his/her clients and cases along. After a decent interval, the “special counsel” takes full retirement.

3. Merging with another firm

If selling your law practice or merging it with another firm is indeed your ultimate goal, then you need to make choices that will lead to the growth of your business, rather than stagnation. Steps need to be taken soon, even if you have no intention of cashing out or stepping back anytime soon.
Reviewing both your active files and closed files will be particularly important in determining the actual value of your law practice. If you are looking to approach another law firm to take over your practice, most firms have procedures in place to evaluate possible merger candidates and potential lateral hires. Precisely which metrics you should choose to monitor will vary from firm-to-firm based on your market focus.

Portability of the lateral hire’s book of business is always important when evaluating a lateral hire so, as you audit your open files, pay particular attention to new business you have brought in over the past two to three years. This can be particularly challenging for aging lawyers who have been trimming their practice mix over the years to eliminate stress or possibly spend more time for travel and time with grandchildren.

There are some standard metrics used by potential buyers when examining your book of business:
Billable Hours is the first metric that will be used to make year-over-year comparisons in order to gain a bet- ter understanding of whether the book of business you bring in is growing, declining, or remaining stagnant. Billable hours for many sole practitioners can be a dif- ficult metric to use for any of a number of good reasons.

Effective Rate is the second metric you should expect to be used. This metric is effectively long-term billing realization which looks at the value of the work versus what the law firm actually billed. Effective Rate will be another difficult metric for small firms to track. Comments from the Rural Law Practice in New York State Report identify some of the problems solo and small firm practitioners in rural law practices face in tracking Effective Rate.

  1. My client base is often below the poverty level
    so payment is a challenge. Operating a contem- porary solo practice with necessary technology, infrastructure and compliance is difficult with my economic client base. I am tethered to my practice. I work through my weekends, work through my vacations, there is no fallback.
  2. While there are sufficient amounts of potential clients in my area, their ability to afford even a minimal hourly rate leaves me doing work at almost a pro-bono level for clients who are not really pro-bono clients. It makes it very difficult to maintain my type of practice here and even harder to earn a living at it requiring me to work non-legal jobs just to get by.

Business Development is the lifeblood for any lateral hire. As you review your open files, pay particular attention to the depth of your client relationships in order to be prepared to explain how you won the business. You will need to defend how realistic your business predictions are, so you will need to establish the metrics you intend to use.

Lenny’s Comments:

I’ve never been asked to “merge” with any of the large firms from nearby cities. I’ve seen colleagues who have done so. Some leave as quickly as possible. Others stay on, adapting to a new culture. I have observed that these arrangements tend to resemble branch banks or detached medical clinics, designed to feed customers and patients to the “main office.”

I have one colleague who finished his contractual requirement for time with the merged entity and decided to test the market for selling his house. It sold at asking price within a week. Within a month he and spouse were happily ensconced in the Carolinas. His former partner seemed quite content to remain with the merged firm.

4. Forming an “Of Counsel” relationship with another lawyer or law firm

Another path to retirement for aging sole practitioners is to team-up with larger firms in an of counsel relationship so that clients don’t have to be turned away or referred out. Of counsel relationships refer to a part-time practitioner who practices law in association with a firm, but on a basis different from that of the mainstream lawyers in the firm. This generally includes a commitment for a designated period for time to transition the clients to the new firm. Some degree of planning is needed to identify the right firm and to work out your value to this new relationship.
In looking for of counsel candidates, firms will want to know who and what they are getting. Does the of counsel prospect come with their own professional liability insur- ance coverage or a tail policy? What is your claims history? Any pending or potential problems? If so, the firm may be hesitant to take on new risk.

Lenny’s Comments:

My oldest friend, who I’ve known for 68 years, was also an attorney, also a solo practitioner, also in the same small, rural town we both were raised in. He retired from his solo practice and county job and moved to a warmer clime; but he had files to close and business to complete. He did so by becoming “of counsel” to my office. I explained to those who inquired that this meant I got
to “run errands” for him. I imagine other “of counsel” arrangements required more than a handshake, but this worked for us. It also gave us a good excuse to speak via Skype and otherwise on a regular basis.

5. Turning out the lights and closing the door

This path to retirement has becomes the path of least resistance for far too many solo practitioners who either believed they will be living forever or they just never got around to planning. This has never been a good option for spouses and other family members who are left to clean out office space and dispose of closed files.

A recent New York State Bar Association Committee on Professional Ethics’ Opinion 1182 (01/23/2020) on Dis- position of Wills makes this path of least resistance somewhat more complicated. This new ethics opinion states that a New York lawyer, who has more than 500 wills, where the testators’ locations can’t be determined with due diligence, has to hold onto them indefinitely unless the law provides an alternative.

The committee concluded that, “A lawyer may not dispose of Wills, whose testators’ locations and/or circumstances are unknown. The Wills constitute property, and the lawyer must safeguard the Wills indefinitely unless the law affords the lawyer an avenue to file or otherwise dispose of the wills.” What Opinion 1182 will do to help aging lawyers who find themselves being forced to turn out the lights and close the door behind them is yet to be seen.

Lenny’s Comments:

It will be of interest to see how this Opinion is put into effect by the various bar associations. Those who may have agreed to act as custodian of other attorney’s wills will realize the truth of the maxim: “No Good Deed Goes Unpunished.”

As I opened my practice 42 years ago, after reading the then applicable rules, I determined to hold no clients’ original documents in files. I have been faithful in my observance of the restriction and, as a result, face less tra- vail in disposing of my remaining paper files. Of course, I may have to hire a small army of strong young people to carry the boxes out to the shredder truck.

Advanced Exit Planning Begins Here

As we grow into our 80s and 90s most of us will begin to face more life-limiting challenges. The big question for us now is how best to prepare for these challenges. Even if you have no adult children around to serve as a safety net, the sensible path for all of us is to make some decisions now, while we can get around and our brains are still sharp. By the year 2050, the over-85 age group will triple as a percentage of the population, and they estimate that close to one-third of those who reach age 85 will experience some level of dementia.

Nobody wants to think about the prospect of failing mental capability in later years, but it’s another issue we all have to think about and address. An estimated 10 million Americans have dementia or cognitive impairment. [3] “The incidence of cognitive decline begins rising after age 75, with the rate of dementia growing quickly from 7% for people with 2 million new cases reported every year.
in their early 70s to roughly a quarter for those in their early 80s, raising the risk of financial mistakes or fraud.”[4]

It’s time to stop pretending that you’re invincible. Acknowledging your own mortality can be very difficult; but when you manage it, you can start structuring the rest of your life in a more meaningful way.

Putting an Advance Exit Plan in place for your business will enable you to prepare for unexpected disability, incapacity, retirement or death so that your family, employees and clients are not left in the dark if something should happen to you. There are literally dozens of good guidebooks written to help lawyers looking to develop a transition/succession plan or exit plan for closing a law practice. No two exit experiences are exactly alike, so it is important for you to tailor your plan to your own transition goals.

Top of our list of resources for New York lawyers is The NYSBA’s Planning Ahead Guide: How to Establish an Advance Exit Plan to Protect Your Clients’ Interests in the Event of Death. [5] Since retirement from the practice of law does not eliminate an attorney’s ethical obligations, another important document you should examine is Ethical and Professional Considerations for the Retiring Attorney [6] by Matthew Lee-Renert. This article was originally part of the materials for the Senior Lawyers Section Fall 2018 Program, “Retirement Planning 101: The Top Six Things Both Clients and Attorneys Must Know and Do.”

Endnotes

  1. Wiatrowski, William J., Changing Retirement Age: Ups and Downs, Retirement Age, Monthly Labor Review, April 2001. https://www.bls.gov/opub/mlr/2001/04/art1full.pdf.
  2. Phased Retirement—Reshaping the End of Work (Watson Wyatt Worldwide, 1999).
  3. Correia, Margarida, Dementia: The New Retirement Risk, Bank Investment Consultant, vol. 22, no. 07, 2014, pp. 18-n/a. ProQuest, https://ezproxy.sju.edu/login?url=https://search-proquest-com. ezproxy.sju.edu/docview/1559211096?accountid=14071.
  4. Belbase, Anek and Geoffrey T. Sanzenbacher. 2017b. Cognitive Aging and the Capacity to Manage Money, Issues in Brief 17-1. Chestnut Hill, MA: Center for Retirement Research at Boston College. https://crr. bc.edu/wp-content/uploads/2018/12/ IB_19-1.pdf.
  5. NYSBA’s Planning Ahead Guide: How to Establish an Advance Exit Plan to Protect Your Clients’ Interests in the Event of Your Disability, Second Edition, New York State Bar Association, 2015- 16, P. 3-4.
  6. Lee-Renert, Matthew, Ethical and Professional Considerations for the Retiring Attorney. This document was written by Matthew Lee-Renert and Thomas Leghorn, Esq., for a presentation at the Senior Lawyers Section Fall 2018 Program, “Retirement Planning 101: The Top Six Things Both Clients and Attorneys Must Know and Do,” will provide guidance on malpractice issues relatedto retirement. These materials and any statements made in the presentation of such are not official pronouncements of the Appellate Division, Second Judicial Department, and are not to be cited to a court or relied upon as official guidance.