By: Martin M. Shenkman, CPA, MBA, JD
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.
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:
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.
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