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.

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