Transition Planning

Visualize the arc of your practice. In the long run, are you alone or part of a team? 

Will you share what you learned and transition your practice to new counsel? 

Will you practice until your life ends? 

Succession Planning – Overview

Succession planning anticipates the ultimate transfer of a legal practice from a predecessor to a successor lawyer. The objective is to transfer future responsibility and revenue from all or part of the practice to another lawyer or law firm, whether by sale or another method of transfer achieved by some arrangement in cooperation with the successor lawyer or law firm. Ideally, all sides receive value, and representation of clients is seamless. 

Also ideally, the planning is done years in advance of a target exit date. This enables the planning lawyer to optimize the value of the practice and find the best form of succession for an easy transition with the timing that works best for the exiting attorney and their clients. Unfortunately, all too often the planning is not done timely, and a sudden cessation of practice occurs that often becomes a disaster for clients and provides little or no compensation for the attorney or their family for the practice. This is addressed in the cessation of practice portion of this toolkit, describing how a lawyer can at least name a custodian of their choice to help transition their files when the attorney is not able to do so. That should be the first step on a lawyer’s succession planning journey. 

For those lawyers who have not developed plans, it’s never too late to engage in some plan as long as there is still a practice for the lawyer to exit. Some planning is always better than no planning. 

Like all succession planning, the plan begins with identifying what the exiting lawyer wants to accomplish and over what period. Identifying objectives creates an outline of a plan and can help develop the appropriate timeline. Identifying the needs of the clients and features of the practice the lawyer wants in place for the exit also helps identify potential successor lawyers. 

The discussion below starts with traditional ways to transition out of practice for value without a sale and then addresses how a lawyer may sell a practice in compliance with the applicable rules of professional responsibility. 

Traditional methods of transferring client matters for compensation short of selling the practice include: 

• Hire a younger lawyer and transfer client matters over time with client consent, and then arrange departure compensation for the senior lawyer at the proper time. 
• Join or merge with another firm, introduce clients to the new firm’s lawyers, arrange compensation according to the value of the work or “book of business” brought to the firm, and arrange origination and departure compensation accordingly. 
• Engage outside cocounsel with client consent and enter into a permissible fee sharing arrangement based on work performed or responsibility shared. 

Consider the following when transitioning through affiliation with other lawyers or law firms: 

• Consider forming a professional entity. The entering attorney joins the entity, and all files and assets need no further transfer. The new lawyer simply takes over the firm when the time is right. 

• If enough funds will not be available for a full buyout upon exit, consider developing a retirement or other deferred compensation arrangement or funding an existing one to compensate the exiting attorney. 
• Consider keyman insurance or disability insurance to safeguard against an untimely death or disability of either lawyer causing an earlier exit than planned. 
• Agree in advance on how to unwind the deal, in case the transition does not work for any reason. 
• Each lawyer should consult their malpractice insurer for tail coverage or other arrangements to ensure that they will not be liable for the other lawyers’ prior acts. 
• For affiliation with a younger lawyer, make plans to ensure adequate mentoring and development of client relationships over time. 

• For mergers of firms, be aware of and carefully address any entity dissolution or combination rules and properly document for state entity and tax law purposes. 

Exiting a practice by joining with other lawyers or law firms has the advantage of avoiding ethical concerns raised when selling a practice, such as those related to transferring files to outside lawyers and impermissible fee-splitting arrangements. 

Sale of a Practice - Transactional Factors

When planning an exit to the practice of law, lawyers should consider whether their practice has the kind of value and type of client matters that would interest other lawyers in purchasing the practice. While several ethical rules must be navigated when selling a practice, there is no prohibition to doing so in Texas, and other lawyers and firms have done so successfully. 

Lawyers spend decades building successful practices and client relationships. That should translate into real value for the lawyer and/or their family when it’s time to exit the practice. If properly managed, transferring that goodwill to a successor lawyer who can enhance or jump-start their own practice with it could result in a satisfactory purchase price. Answers to frequent questions about planning for and executing a sale follow: 

1. To Whom Might I Sell? 
   1. One of the best sources for a buyer is the exiting lawyer’s associates and partners already working at the same firm, if any. They know the practice, the clients, and the value of your files.
   2. Also consider competitors in your practice area whom you know and believe will be good lawyers to take care of your clients. Do not fail to consider young lawyers who may be hanging their shingles as solos after law school who may be hungry for clients like yours and an opportunity to be mentored by you during transition.
   3. Law firms from out of state have been expanding their practices for a geographic presence in Texas and certain local markets. Firms already in Texas have been expanding as well. And many are looking to expand certain profitable practice areas, especially those with a desired expertise.
2. How Do I Find Buyers? 
   1. Use existing relationships and network to find those who may be looking to enhance their practice with clients like yours. But be cautious about telegraphing your intent to sell with competitors, to minimize clients being poached by your competitors or clients learning prematurely that you are planning to exit.
   2. Consider contacting lawyer consultants who advise on how to enhance practices, as they may be a resource for potential buyers.
   3. Consider using business brokers to help you market and prepare your firm for a sale. But be careful to inquire about their experience with selling law practices, as there are ethical and other issues unique to selling a law practice.
   4. You can advertise the sale of your firm in legal publications, with caution not to reveal any protected client information.
3. How Do I Value the Business to Set the Price?
   1. Valuation is practice-specific and depends largely on the practice area, type of clients, and expected revenue stream. A formula for valuing one practice may not work for another.
   2. Items key in setting a value or purchase price include:
      1. Nature and consistency of client base and predictive collections for clients that are expected to remain with the firm.
      2. Referral network transferability.
      3. Systems and operations (include the condition of your files and your file management system).
      4. Name and reputation attached to the firm.
      5. Phone number, website domain, social media account, blogs, etc.
      6. Office space, furnishings, and equipment that might be of interest.
      7. Availability of existing employees that may remain with the practice to help transition and maintain client relationships.
4. How Should the Deal Be Structured?
   1. Decide if you intend to sell your entire practice or just a particular practice area or geographic area.
   2. The agreed purchase price can be fixed, typically paid either as a lump sum or in agreed installments over a set period.
   3. Another method is to pay the agreed purchase price on an earn-out arrangement, which pays a percentage of revenue earned over time. With this method, however, it is critical not to structure the payments as a fee split, which is impermissible. Rather, the timing and size of installments should be based on an affordable portion of new fees earned.
   4. If you join or merge with the purchasing firm, your compensation might be structured pursuant to a compensation plan or retirement plan. An exiting lawyer may take any title that works but is often listed flexibly as “of counsel.”
5. Can I Continue to Practice after Sale?
   1. The deal may include a period for transitioning your clients and expertise to the purchasing firm or lawyer, often required by the buyer to solidify their new client relationships. Your role can be anything that fits, ranging from full- or part-time employee to “of counsel” or simply as a client relationship manager.
   2. When less experienced lawyers are assuming your practice, it is recommended that you continue to play some role as a mentor.
   3. A sale of an entire geographic area or a defined type of practice should be carefully described in the purchase agreement. You must then be careful not to practice geographically or by type in violation of those restrictions and, if you refer business, not to allow compensation that might violate the fee sharing rules.
6. What Are the Preliminary Stages of a Sale Transaction and What Documents Are Involved?
   1. Identify what is being sold, whether all of the practice, some practice areas, or some practice locations.
   2. Decide whether the seller will continue to practice with or separate from the buyer.
   3. Determine expected future revenues and related value of the practice being sold.
   4. Prepare notice letters to clients and authorizing consent to review of their files by the prospective buyer.
   5. Enter a nondisclosure and confidentiality agreement with the prospective purchaser to protect the confidentiality of client files and firm financial information.
   6. Arrange for a preliminary limited review of primary client names, types of matters for confidentiality and competence concerns, and overview of firm financials. It is best to share only nonspecific revenue, billing practices, client concentrations, and major expenses.
   7. Prepare and sign a letter of intent with a nonsolicitation agreement with respect to employees and clients.
   8. Arrange and oversee a due diligence review of your client files and more careful analysis of potential conflicts. Likewise arrange and supervise a due diligence review of detailed financials of the firm.
   9. i. Determine whether there will be a transfer of office space, equipment, phone number, website, and existing relationships. If so, identify the transfer documents necessary for those assets.
   10. Determine how clients on closed files will be notified and the manner in which their files will be properly returned or destroyed. Similarly, determine how clients on active files not part of the sale will be notified and how their files will be retained or transferred to other counsel.
   11. Prepare a detailed term sheet for drafting the purchase agreement.
7. What Terms Should Be Included in a Law Practice Purchase Agreement?
   1. Warranties of key facts:
      1. Revenue produced
      2. Absence of malpractice claims
      3. Valid licenses
      4. Level of experience
   2. Structure of purchase price (e.g., lump sum installment or portion of fees generated) and any adjustments for actual receipts.
   3. Legal malpractice insurance coverage for pre- and postrepresentation (e.g., tail coverage).
   4. Indemnification provisions.
   5. Noncompete and nonsolicitation provisions compliant with ethics rules.
   6. How to handle prior closed files and notices to clients.
   7. How to handle IOLTAs.
   8. Consider alternative dispute resolution clauses.

Michael Downey, Selling a Law Practice under ABA Model Rule 1.17, Am. Bar Ass’n (Feb. 28, 2017), https://www.americanbar.org/groups/senior_lawyers/publications/voice_of_experience/2017/february-2017/selling-a-law-practice-under-aba-model-rule-1-17/. 

While Texas has considered adopting a rule like 1.17 of the ABA Model Rules of Professional Conduct, providing guidelines for sale of a practice that meets the ABA model rules, no such rule has been adopted yet for the Texas Disciplinary Rules of Professional Conduct. Still, the guidelines of the ABA rule are helpful in structuring a transaction in an ethical manner and should be consulted when planning and documenting a sale. 

ABA MODEL RULE 1.17 – SALE OF A LAW PRACTICE 

A lawyer or a law firm may sell or purchase a law practice, or an area of law practice, including good will, if the following conditions are satisfied: 

(a) The seller ceases to engage in the private practice of law, or in the area of practice that has been sold, [in the geographic area] [in the jurisdiction] (a jurisdiction may elect either version) in which the practice has been conducted; 

(b) The entire practice, or the entire area of practice, is sold to one or more lawyers or law firms; 

(c) The seller gives written notice to each of the seller’s clients regarding: 

(1) the proposed sale; 

(2) the client’s right to retain other counsel or to take possession of the file; and 

(3) the fact that the client’s consent to the transfer of the client’s files will be presumed if the client does not take any action or does not otherwise object within ninety (90) days of receipt of the notice. 

If a client cannot be given notice, the representation of that client may be transferred to the purchaser only upon entry of an order so authorizing by a court having jurisdiction. The seller may disclose to the court in camera information relating to the representation only to the extent necessary to obtain an order authorizing the transfer of a file. 

(d) The fees charged clients shall not be increased by reason of the sale. 

Model Rules of Pro. Conduct r 1.17 (Am. Bar Ass’n 2020) (emphasis added). 

Sale of a Practice - Ethical Considerations

One of the most misunderstood “nonrules” in the Texas Disciplinary Rules of Professional Conduct (TDRPC) is the so-called ban on selling a law practice. There simply is no such ban. There are no rules that prohibit lawyers from selling all or part of their practices. 

That said, there are ethics concerns that impact the sale of a law practice. For purposes of discussing applicable rules, “sale of a law practice” refers to the conveyance of client matters from the lawyer who has an attorney-client relationship with the client (“selling lawyer”) to an acquiring lawyer. Relevant provisions of the Texas Disciplinary Rules of Professional Conduct include the following: 

Rule 1.01 Competent and Diligent Representation 

The acquiring lawyer needs to have the competence to render legal services and represent the clients in the matters previously handled by the selling lawyer. This presents a challenge when the acquiring lawyer may not know enough about the matters in the files to determine competence to represent the clients. See Rule 1.05 below, “Confidentiality of Information.” 

Rule 1.02 Scope and Objectives of Representation 

If the acquiring lawyer intends to change the scope, objectives, or general methods of representation from those agreed upon with the selling lawyer, the acquiring lawyer should seek to clarify with the client within a reasonable time and enter into a new representation agreement. 

Rule 1.03 Communication 

The selling lawyer should provide notice to affected clients. The notice should include the following information: 

1. The selling lawyer’s intent to sell all of the lawyer’s practice or an entire subject area of the lawyer’s practice;
2. The client’s right to retain other counsel or take possession of the client’s file;
3. The identity of the acquiring lawyer and the location where that lawyer intends to practice;
4. The location of the client’s file and when it will be available for retrieval, that a written receipt will be required, and that the selling lawyer is entitled to make and retain copies of the file at the selling lawyer’s expense;
5. The selling lawyer’s intent to handle funds on deposit in the selling lawyer’s IOLTA or other client trust account and any other client property by transferring them either to the acquiring lawyer, who will be responsible for such funds and property, or to the client, if the acquiring lawyer’s representation is not accepted by the client;
6. Whether the acquiring lawyer intends to represent the client on the same basis as that between the selling lawyer and the client or the acquiring lawyer intends to alter the terms of the engagement in the future; and
7. The selling lawyer’s and acquiring lawyer’s intent to presume the client’s consent to the transfer of the client’s file if the client does not take any action or does not otherwise object within 45 days of the receipt of the notice.

In addition, the acquiring lawyer should consider that the client may have communication expectations based on the selling lawyer and attempt to adjust those expectations as needed. 

Rule 1.04 Fees 

The acquiring lawyer should establish the basis or rate of fees with the new clients, preferably in writing, before or within a reasonable time after taking over the representation. 

In addition, the selling lawyer is not permitted to sell individual client matters. The sale price for an individual client matter is effectively a referral fee earned for simply turning the matter over to another lawyer while retaining no responsibility for the matter. Whether a selling lawyer is engaged in a “sham sale” in violation of Rule 1.04 depends on the specific facts and circumstances of the transaction. See Rule 5.06 below, “Restrictions on Right to Practice.” 

Rule 1.05 Confidentiality of Information 

Before disclosure of information relating to a specific representation of an identifiable client, the selling lawyer should secure consent from the client and an agreement to maintain client confidences from the acquiring lawyer. 

Rule 1.09 Conflict of Interest: Former Client 

An acquiring lawyer who ultimately decides not to purchase all or a part of the selling lawyer’s practice must consider conflicts of interest. Specifically, the information learned during review of the selling lawyer’s client matters may prohibit future representation and require withdrawal from current representation if adverse to clients in the matters being sold. 

Rule 1.14 Safekeeping Property 

The acquiring lawyer should verify with the clients, and with other interested parties, the nature of any property the lawyer will be safekeeping and the means of doing so. 

Rule 1.15 Declining or Termination of Representation 

The selling lawyer should provide notice to affected clients regarding the termination of their representation. See Rule 1.03 above, “Communication.” 

Rule 5.06 Restrictions on Right to Practice 

The selling lawyer and the acquiring layer may enter a negotiated noncompete agreement pursuant to the sale of all or part of a law practice. In fact, the sale may be conditioned on the selling lawyer ceasing to engage in the private practice of law or some particular subject area of practice for a specified period within the geographic area in which the practice has been conducted (or within some other geographic area agreed to by the selling and acquiring lawyers). This type of agreement is not within the scope of Rule 5.06 and may provide evidence that the transaction is not a “sham sale” under Rule 1.04. 

Ensuring Password Access

Whether through custodianship, sale of a practice, or other disposition, persons with interest in a practice (referred to collectively as “Authorized User”) may require password access for logging into electronic devices or digital resources including: 

• Computers 
• Email 

• Banking and financial accounts 
• Cloud data storage 
• Cell phone and other electronic devices 
• Online libraries and research services 
• Social media 

• Online case filing service 
• Client and case management system, client-related data 
• Financial management services and other software (whether local or cloud-based) 

There is no simple solution for efficiently and safely ensuring digital access to the necessary devices, digital services, or other electronic resources. This article addresses some alternatives, discusses pros and cons, and offers a few best practice recommendations. 

1. Electronic List. NOT RECOMMENDED. Compiling a current list of passwords in a MS Word or Excel file or similar electronic format is fraught with problems. For example, anyone will struggle to keep the list diligently refreshed with the most current passwords: 

• Passwords may change frequently since vendors require users to periodically update stale passwords. And how many times have you changed passwords because you forgot your log-in credentials? 
• New accounts or services would also need to be captured on the password list. 

And although you might be able to store an electronic list locally in a secure, encrypted location, each of the following potential data storage formats have significant drawbacks: 

• Secure cloud storage may not be secure as desired: 

• Information stored online may be subject to data breaches, even if encryption reduces the risk. 

• The cloud storage password must also be shared between the attorney and the Authorized User, whether before the need arises or contingently on an incapacitating event. 
• Emailing the list to the Authorized User may be unsafe from threat actors or phishing. 
• Physical storage media, such as a USB drive or portable data disk, can be misplaced, lost, or stolen. There may be other logistical impediments that may make it difficult to access the media or update passwords and services. 

2. Paper List. NOT RECOMMENDED. While potentially more secure than Option #1 in some respects since the list is not directly hackable, this practice also is not an optimal solution: 

• Basic password protection protocols strongly advise against writing down passwords (but see https://tiptopsecurity.com/is-it-okay-to-write-down-my-passwords-how-to-do-it-right/ for contrary advice). 

• Exercising due diligence to maintain the most current passwords and services is equally challenging for all the reasons listed in Option #1. 

If you elect to use this dubious practice, options for storing the list include: 

• Giving it to the Authorized User (with the added risk of the list being lost or stolen). 
• Keeping it in your personal safe. 
• Placing it in a safe-deposit box, giving contemporaneous or contingent future access to the authorized representative. 

3. Password Manager. MUCH BETTER OPTION. Probably the most recommended go-to solution by tech security experts in recent years, a password manager (a/k/a password management app or digital wallet) is an online service or application that encrypts and securely stores a user’s passwords and other log-in information. To begin using a password manager, a user commonly: 

• Exports the passwords and credentials into a file from the user’s browser or other location. 
• Imports the file’s contents into the password manager app on the web in encrypted cloud storage (a/k/a vault). 
• Needs thereafter only to memorize or otherwise preserve one master password (a/k/a “single sign-on” or SSO), grant the password manager app access to the vault, and automatically complete passwords and credentials. 

To ensure access to local files on the attorney’s physical computer that are not available in the cloud, also store the computer’s log-in password on the password manager. 

For information on several potential vendors, with helpful pros and cons for each, see https://www.pcmag.com/picks/the-best-password-managers. Prices vary; at present 1Password charges about $35 a year. Various major platform providers also provide this service, which you might already be using without knowing it, such as Apple’s iCloud Keychain or the free Google Password Manager. 

Depending on the specific vendor, potential features and services for a password manager service may include: 

• Generating strong, complex passwords (rather than using the exact same password – or similar variations – across multiple websites, which we all know you do). 
• Capturing passwords for desktop applications. 
• Creating more than one vault (for example, different vaults for business, family, and personal purposes). 

• Filling out forms automatically. 
• Secure encrypted data storage for your files and other data (apart from just your passwords). 
• Access to a personal virtual private network (VPN). 

For added security, password management services typically offer multifactor authentication (MFA) – sometimes referred to as two-factor authentication (2FA) when two steps are involved – to provide extra layers against hacking and phishing. In addition to the master password (first step/factor), MFA or 2FA protocol requires one or more extra steps you can choose from to verify your identity, such as: 

• Entering a personal identification number (PIN). 

• Clicking a link sent to your email address. 
• Using thumbprint or facial recognition tools, or providing another biometric identifier. 
• Accessing a push notification on your phone. 
• Using a physical object in your possession, like a Hardware Security Key (see Option #5). 

PRO: Emergency access. Crucially, many services (but not all!) offer the option to designate authorized users for emergency access to your password manager, which can be an efficient way to provide this access. For example, 1password has an “Emergency Kit,” which is a PDF for storing in a safe place which contains your “secret key” (redacted in the example shown) and a space to record your master password for accessing this service. You have the same options (and drawbacks) as a paper password list for ensuring emergency access to this kit, including: 

• Giving it to the Authorized User. 
• Storing it in your personal safe. 
• Placing in a safe-deposit box. 

Court Order: If the person does not have such emergency access to the password manager after an attorney’s incapacitating event, they might be able to obtain emergency access to the service by court order. For example, a custodian attorney may obtain an order for custodianship and court supervision under Texas Rule of Disciplinary Procedure 13.03 so that the custodian may “examine the client matters, including files and records of the attorney’s practice, and obtain information about any matters that may require attention.” Alternatively, a probate court can similarly provide an order for such access in a probate proceeding. However, some platforms and services expressly disclaim any obligation to provide a user’s passwords or log-in details. For example, see Google, Submit a Request Regarding a Deceased User’s Account, https://support.google.com/accounts/troubleshooter/6357590 (last visited June 14, 2023). 

CONS: No password solution is perfect, and password managers can have their drawbacks: 

• Compatibility: Before jumping in with the first service you find, verify whether the password manager service is compatible with your default browser, your specific devices, and any essential websites. 
• Single point of failure: Requiring only a single master password for accessing all of your online accounts and credentials creates the concomitant problem of a potential single point of failure causing a lack of access if the master password is lost or stolen. When this happens, password manager apps often do not have recovery protocols to retrieve or reset the master password (to eliminate the risk that it is phished by someone posing as you). 
• Security: While these services frequently offer some of the best-in-class encrypted cloud protection for password credentials, they are not flawless. At least one password manager company infamously sustained a serious breach in which customers’ encrypted vaults were stolen (https://www.theverge.com/2022/12/22/23523322/lastpass-data-breach-cloud-encrypted-password-vault-hackers), with an engineer’s employer vault subsequently hacked (https://arstechnica.com/information-technology/2023/02/lastpass-hackers-infected-employees-home-computer-and-stole-corporate-vault/) a few months later. 

4. Passkeys: POSSIBLY A GREAT OPTION BUT TOO SOON TO TELL. Passkeys purportedly offer a more convenient and safer alternative to passwords. A passkey is instead based on a user’s trusted devices and allows the user to sign in by unlocking their computer or mobile device with their fingerprint, facial recognition, a local PIN, or a hardware security key (see Option #5). Each of a user’s trusted devices will have its own passkey, and platforms should sync passkeys across multiple devices. Passkeys use a FIDO2 authentication protocol (Fast ID Online). 

Keep an eye on this emerging technology. Passkeys may become the next gold standard for security and electronic authentication, revolutionizing access to devices and credentialed websites by eliminating the need to recall passwords. Passkeys should soon work on most major platforms and browsers. Since there is no password to hack, it is resistant to phishing, and it is almost impossible for threat actors to hijack credentials, messages, or emails to log in, unless they actually have one of your devices in their possession already logged in. Finally, passkeys and password managers are not mutually exclusive, as current password manager vendors, such as 1Password and Dashlane have publicly announced they are going to support passkeys, meaning these services can work in tandem to provide multiple layers of password and device security. 

For more information on passkeys see these resources: 

• FIDO Alliance, Passkeys, https://fidoalliance.org/passkeys/#faq (last visited June 14, 2023) 
• Google, The Beginning of the End of the Password (May 3, 2023), https://blog.google/technology/safety-security/the-beginning-of-the-end-of-the-password/ 

5. Hardware Security Key. As mentioned above, a hardware security key (like the Yubikey and the Google Titan pictured here) can complement authentication for a password manager and other services, or even serve as the primary security for your devices. A hardware security key may also be referred to as a token, fob, dongle, FIDO key, physical security key, or universal 2nd factor (U2F) key. Purchasing a key directly from a manufacturer or on Amazon is relatively inexpensive, costing approximately $25 to $50. 

This key contains a private key code for authentication purposes that communicates with a device when the key is plugged into the device’s USB port. It may also (or instead) have the ability to connect with the device through near-field communication (NFC) protocol, so that a user needs only to bring the key near the device or tap the device. 

As noted above, a hardware security key can either: 

• Offer an extra layer or factor of security to protect passwords or ensure secure access (as part of MFA or 2FA), for example, in conjunction with a password manager or a passkey. 
• Be used as a stand-alone tool for authentication to access hardware or certain services without the need to enter a password. 

CON: The primary disadvantage for such a physical security device is that it might be lost, stolen, or damaged. If there is no duplicate or alternate hardware key and you no longer possess the original U2F hardware key, it may be impossible to regain access. To alleviate this issue, you might consider obtaining two duplicate keys, one for yourself and another for the successor or in a secure place. 

If you use a hardware key in conjunction with a password manager, confirm that security protocols for each are compatible (for example, that the key and the password manager both support FIDO2 authentication for ease of use and up-to-date protection). 

6. TL; DR: RECOMMENDATIONS. What are the best options for securing your passwords for easy access? Each attorney’s situation varies and one solution may not fit all users, but the following framework offers a launching point:
7. Set up a password manager (see Option #3).
8. Take the steps necessary to ensure that your Authorized User has emergency access.
9. If the password manager offers an emergency access kit or similar feature, make it securely accessible by your Authorized User, whether (i) kept digitally and encrypted in the cloud or (ii) stored on paper form in a safe or a safe-deposit box for better security.
10. For maximum security (according to one leading security expert), especially to protect sensitive client information and preserve confidentiality, consider obtaining one or more hardware security keys compatible with the password manager (see Option #5) to provide comprehensive access to your passwords, software, services, and devices – in conjunction with, or in lieu of, an emergency access kit. Keep this key in a safe, securely accessible location for the Authorized User. For the ultimate protection, consider storing the key in a safe or safe-deposit box.
11. Consult an IT professional to determine the best security measures for your current technological configuration and anticipated needs. In appropriate circumstances, consider adding an IT expert as a crucial member of your succession planning team.

Emergency Preparedness - You and Your Custodian

Keep in mind, the custodian attorney serves to close your practice in the event of need. The custodian is not the new lawyer for the clients. 

The Checklist: 

1. Recognize the need for a custodian to close your practice in the event of unexpected, sudden cessation.
2. Select a custodian and discuss custodian duties and willingness to serve.
3. Designate the custodian at the State Bar of Texas portal for advance designation of custodian attorney (https://www.texasbar.com/AM/Template.cfm?Section=Succession_Planning&Template=/Succession/vendor/Custodian.cfm).
4. Consider drafting a custodian agreement under TRDP 13.04; negotiate, draft, and sign.
5. Notify clients of the need for and appointment of a custodian, and request consent to give custodian access to client files in the event of sudden cessation. This can be done in the initial engagement letter.
6. Maintain a client list and file organization for a smooth transition if a sudden cessation occurs. Information may include:
   1. The file number or identifier with the location of the file (paper and electronic).
   2. Whether the file is currently open or closed.
   3. The client’s name, latest address, phone, and email.
   4. A brief description of the matter and relevant court information.
   5. The attorney(s) and staff, if any, working on the file.
   6. A list of client property or items with intrinsic value that are known to be in storage.
   7. A record of funds held in IOLTA.
7. Passwords. Provide the location of passwords to access your client file records, firm financial records, and other practice related databases to your custodian.
8. FORMS: SP Forms
   
   1. Engagement letter (or postengagement letter) with clauses for appointment of custodian and consent to access confidential files.
   2. Online appointment forms.
   3. (Template) custodian agreement.
   4. Power of attorney for access to firm and IOLTA bank accounts effective upon disability.
   5. Will clauses with instructions for the executor to coordinate with the custodian to wind down the practice and gain access to firm accounts and records.

*** 

SAMPLE CONSENT CLAUSE TO INCLUDE  
IN FEE AGREEMENT/LETTER OF REPRESENTATION 

In the event that Attorney dies, resigns, or becomes inactive, incompetent, or otherwise incapable of performing legal services on behalf of Client, Client agrees to cooperate with any successor attorney, any Custodian Attorney, any personal representative of the estate of the Attorney, or any other person having lawful custody of the files and records of Attorney, in order to facilitate the transition of the Client’s matter to counsel of Client’s choice or otherwise terminate Attorney’s services. For the purposes of this provision, “Custodian Attorney” means any attorney or alternate attorney designated by Attorney with the State Bar of Texas for the purpose of examining client matters; notifying clients, courts, and other parties; and/or returning client property, documents, and files pursuant to Part XIII of the Texas Rules of Disciplinary Procedure. 

SAMPLE INSTRUCTIONS TO INCLUDE  
IN LAWYER’S ESTATE PLANNING 

Any Executor designated under this Will shall further have and possess any power and authority necessary to collaborate with any successor attorney, any Custodian Attorney, or any other person having lawful custody of the files and records of my law practice, in order to facilitate the transition of any client matters to other counsel or otherwise terminate [Attorney]’s services pursuant to Part XIII of the Texas Rules of Disciplinary Procedure. For the purposes of this provision, “Custodian Attorney” means any attorney or alternate attorney that I have designated with the State Bar of Texas for the purpose of examining client matters; notifying clients, courts, and other parties; and/or returning client property, documents, and files pursuant to Part XIII of the Texas Rules of Disciplinary Procedure. 

*** 

Lawyer's Will and Knowing When to Say Goodbye

1.  Introduction to James E. Brill, Lawyer’s Lawyer
    Jimmy Brill pioneered many works out of concern for Texas lawyers. He organized Solos Supporting Solos and authored the standard, Dealing with the Death of a Solo Practitioner. Jimmy was the principal author, editor, and project director of the Texas Probate System from 1971 until his retirement in 2019. He also received two lifetime achievement awards from the American Bar Association: one for law practice management and one for service to solo and small firm lawyers.
   
   Jimmy practiced primarily as a solo for more than 60 years. He left this world in 2021, but not without leaving instructions for Texas lawyers. He wrote to us about how to say goodbye to practice in a lawyer’s will.
2. Proposed Instructions for Practice in a Solo’s Will
   

   This is from Jimmy: 

   *** 

   INSTRUCTIONS REGARDING MY LAW PRACTICE 

   I currently practice law as a solo practitioner. In order to provide a smooth transition for my clients and to assist my family, I am providing these guidelines to my Executor and any attorney(s) representing my Executor and beneficiaries under this Will. 

   If my practice can be sold to a competent lawyer, I authorize my Executor to make such sale for the price and upon such terms as my Executor may negotiate, subject, however, to compliance with the Texas Disciplinary Rules of Professional Conduct and other applicable provisions of law. If such sale is possible, I believe that it will provide maximum benefits for my clients as well as for my employees and family. 

   If my practice cannot be sold and I have client files, I recommend that, subject to consent of my clients, estate planning and probate files be referred to (name); real estate files to (name); corporation, partnership, and limited liability company files to (name); family law matters to (name); and personal injury files to (name). 

   In either instance, I recognize that my practice has developed because of personal relationships with my clients and that they are free to disregard my suggestions. 

   *** 

   James E. Brill, Dealing with the Death of a Solo Practitioner, in Advanced Drafting: Estate Planning and Probate Course (State Bar of Tex. 2000). 

3. Knowing When to Say Goodbye
   

   Note that Jimmy didn’t wait to die to leave practice. There is a lesson there, something to be said for following the leader. 

   The notion of glory in dying at the end of final argument is illusory. It may seem romantic to the orator, but the legacy unfolds as a look back to lost opportunities. 

   The time to realize value in practice is in life. 

   Know when to say goodbye to practice. Jimmy wrote about it in another standard, Considerations When Closing Your Law Practice, Tex. Bar J., Feb. 2013 at 143. 

Closing a Practice - The Checklist

1. Confirm that the attorney is disabled, missing, deceased, or otherwise unable to continue practice.
2. Notify any attorney-appointed custodian by checking the State Bar database or notify the State Bar of a need to appoint a custodian.
3. Identify any firm partners, shareholders, or associates or other affiliated lawyers who may naturally succeed to representation of clients with consent.
4. Identify and retain as appropriate any employees of the firm to assist in custodial transition of files and for notifying clients.
5. Determine if court supervision is required under Texas Rules of Disciplinary Procedure 13.01–13.03, file necessary pleadings to invoke court jurisdiction and seek appointment as custodian.

See subchecklist of pleadings and steps to be taken under court order. 

6. Determine if court supervision is unnecessary due to custodian appointment with client consent and proceed with custodian transition of files under Texas Rule of Disciplinary Procedure 13.04.
   1. See subchecklist of procedures under Rule 13.04.
   2. Consider utilizing court supervision of IOLTA funds disposition.
7. Issues requiring special or urgent attention:
   1. Check for conflicts with clients on appointing attorney’s files.
   2. Check uncompleted tasks that need immediate attention.
   3. Check the calendar for any upcoming hearing, trial, or mediation dates or discovery deadlines, and contact the court and/or the parties’ counsel to advise of the cessation and need for continuance as appropriate.
   4. Identify any need for access to firm bank and trust accounts and methods to attain access.
   5. Identify any client property or valuables to be secured or return to the client.
8. Return files to all clients or to successor counsel.
9. Destroy any closed unclaimed files per the attorney’s file destruction policy or court order.
10. Distribute any remaining client funds in the IOLTA and remaining funds of the firm to family or the estate representative, as appropriate.
11. FORMS: SP Forms
    1. Notice letters to clients concerning cessation of practice and need to distribute files.
    2. Pleadings for Rule 13.03 court supervised custodianship.
    3. Notice letters to other counsel.
    4. Receipt and release documents for clients to sign upon receipt of property and/or files.
    5. Letters to clients about unclaimed file destruction.

Dissolving the Professional Entity of a Sole Practitioner

If a solo practitioner formed a professional corporation or limited liability company to practice law, here is a checklist of considerations and statutory procedures for the entity’s dissolution, referred to in the Texas Business Organizations Code (TBOC) as termination, along with a few practice tips. 

1. Information Gathering 

When preparing for the winding up and termination of a professional entity: 

• Obtain recent financial statements, balance sheets, and other accounting records. 
• Obtain federal, state, and local tax returns. 

• Obtain a list of all actual and potential creditors and run a credit report on the entity to identify possible undisclosed creditors. 
• Prepare a list of all litigation to which the corporation is party. 
• Prepare an inventory, with appraised or estimated values, of all entity assets. 

TIP: Review any provisions in the entity’s organizational documents that address termination (corporate bylaws, an LLC’s company agreement, buy-sell agreement). For example, the organizational documents sometimes have provisions that: 

• Name the person responsible for winding up the entity; or 

• Set out termination distributions (after the entity has discharged its liabilities). 

2. Professional LLC 

For a professional LLC, the legal representative or successor of the sole member is charged with the entity’s winding up, if the LLC’s company agreement does not otherwise specify (TBOC § 101.551(2)). 

3. Professional Corporation 

A professional corporation continues after the death, incompetency, bankruptcy, resignation, withdrawal, or retirement of its sole shareholder until the corporation’s winding up and termination (TBOC § 303.005(1)). 

4. Sole Practitioner’s Ownership Interest 

If the sole practitioner of a professional entity dies or otherwise ceases to be authorized to practice law: 

• The sole practitioner’s ownership interest (e.g., shares of a corporation or membership interest of an LLC) must be promptly relinquished (TBOC § 301.008(b)). 
• The legal successor can continue the practice only if the successor is also licensed to practice law; if not, the legal successor must also relinquish the interest (TBOC § 301.008(c)). 
• The ownership interest in a professional entity may be transferred to only an owner, the entity, or another licensed attorney (TBOC § 301.009). 

• If relinquished, the professional entity must purchase the ownership interest (or cause it to be purchased), which may be provided for by the entity’s governing documents or other agreement (such as buy-sell agreement) (TBOC § 301.008(d)). 
• The successor can act as a managerial official or owner of the entity only for the purpose of winding up the entity’s affairs, including selling the entity’s assets (TBOC § 301.008(e)). 

TBOC §§ 301.008(b)–(e), 301.009. 

5. Court Orders During Termination 

The sole owner’s legal representative or successor for a professional entity that is terminating its affairs can apply to a court to: 

• Supervise the winding up; 
• Appoint a person to carry out the winding up; and 
• Make any other order, direction, or inquiry that the circumstances may require. 

TBOC § 11.054. 

TIP: Depending on the circumstances, the successor (or other liquidator charged with winding up the entity) could seek orders under this TBOC provision to: 

• Coordinate with the custodian attorney or the sole practitioner’s executor. 
• Seek to combine an action for court-supervised custodianship under Texas Rule of Disciplinary Procedure 13.03. 
• Seek to appoint the custodian attorney or another person to wind up the entity. 
• Obtain a court order granting or facilitating access to the entity’s files, assets, accounts, digital resources, etc. 

6. Winding Up Procedures 

When winding up a professional entity, the entity (by and through its liquidator): 

• May no longer carry on any business, except to the extent necessary to wind up its business. 
• Must send a written notice of the winding up to each of its known claimants. 
• Must collect and sell its property to the extent any assets-in-kind will not to be distributed to the successor of the ownership interest. 
• May perform any other act required to wind up its business and affairs. 

• May prosecute or defend a civil, criminal, or administrative action. 

TBOC § 11.052. 

The entity must apply and distribute its property to discharge (or make adequate provision for the discharge of) all of its liabilities and obligations. If there is insufficient property to do so, it must either: 

• Apply the property, to the extent possible, to the just and equitable discharge of the liabilities and obligations (including any owed to owners or members, other than for distributions). 
• Make adequate provision for the application of the property to the liabilities and obligations. 

TBOC § 11.054(a), (b). 

The entity may delay paying a debt if it would result in an unreasonable loss of value to the assets to be liquidated (TBOC § 11.053(d)). 

The entity may set aside or reserve funds to cover any debt or liability owed to members or creditors that cannot be located or are unknown by depositing the amounts owed in a special account with the Texas Comptroller, which will protect the liquidator from any further liability if the statutory procedures are followed (TBOC §§ 11.352(c), 11.353). 

7. Optional Claims Procedures 

A terminating entity can use the TBOC’s optional claims procedures to shorten the period for asserting a claim against the entity by sending notice to claimants by certified mail (TBOC § 11.358). 

TIP: To take advantage of these optional procedures, the entity is not required to send notice to all potential claimants. It can deliver the notice to only a few selected creditors. 

Under these procedures, a claim is extinguished by operation of law if the claimant fails to either: 

• Timely present a written claim. 
• Timely bring an action if, after the claimant presents a claim in response to the notice, the entity subsequently delivers a notice of rejection. 

TBOC § 11.359(b). 

If the entity does not use this procedure, a claim otherwise expires if the claimant does not begin a proceeding within three years of the entity’s termination (TBOC § 11.359(a)). 

8. After Discharging Liabilities 

Any remaining property, whether in cash or in kind, is distributed to the owners of the ownership interests (TBOC § 11.054(c)). 

Consult with the entity’s accountant or another tax professional to complete and federal tax and recordkeeping responsibilities such as: 

• Filing final tax returns. 

• Fulfilling any employee obligations. 
• Reporting payments to contract workers. 

See IRS, Closing a Business (Feb. 2, 2023), https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business. 

After completing winding up, the entity must: 

• Request a certificate of account status from the Texas Comptroller (https://comptroller.texas.gov/taxes/franchise/certificate-letter-request.php). 

• File a certificate of termination with the Texas Secretary of State that attaches the certificate from the Texas Comptroller (see https://www.sos.state.tx.us/corp/termreinfaqs.shtml). 

Conclusion: The Journey to Graduation

Transition planning is something more than a transaction. Done right, it sets the stage to graduate from practice. 

The best graduation is a time to reflect and celebrate. It is a credential and a sign of achievement. 

By pausing to consider the end of the arc, it gets easier to take new care. That’s better care of you, better care of your practice, and better care for family, colleagues, and friends. 

It’s a journey to graduation (and it’s okay to have a good time). 

Forms Listed Below:

• File Retention Policy Practice Tips Checklist
• Sample File Retention Policy
• Template Application for Court to Assume Jurisdiction
• Template Authorization File Destruction 
• Template Authorization File Transfer
• Template Custodian Report Motion to Dissolve
• Template Letter Active File
• Template Letter Closed File
• Template Proposed Order on Application
• Template Request File Retrieval
• Template Show Cause Order
• Template Waiver and Consent

 

Resources

1. Law Practice Resources, About Us: https://www.texasbarpractice.com/about-us/
2. Succession Planning: https://www.texasbarpractice.com/law-practice-management/plan/
3. Portal to Online System for Advance Designation of Custodian Attorneys: https://www.texasbar.com/AM/Template.cfm?Section=Succession_Planning&Template=/Succession/vendor/Instructions.cfm
4. Sale of a Practice: https://www.texasbarpractice.com/law-practice-management/article/best-practices-when-selling-a-practice/
5. Closing a Practice: https://www.texasbarpractice.com/law-practice-management/close/
6. Part XIII of the Texas Rules of Disciplinary Procedure (Cessation of Practice): https://www.legalethicstexas.com/resources/rules/texas-rules-of-disciplinary-procedure/voluntary-appointment-of-custodian-attorney-for-cessation-of-practice/
   • The mechanics of TRDP Part XIII differentiate between ordinary cessations and cessations involving extraordinary circumstances. Ordinary cessations channel through TRDP 13.01.
   • In extraordinary circumstances, any interested person may petition a court to assume jurisdiction over the lawyer’s law practice. Prerequisites for the petition appear at TRDP 13.02. If the court assumes jurisdiction, the court will appoint one or more Texas attorneys to serve as custodian-attorneys under TRDP 13.03.
   • Under TRDP 13.04, lawyers may enter agreements for custodianship, appointing their own custodian attorneys.
7. Opinion 627 (Disposition of Files and File Screening): https://www.legalethicstexas.com/resources/opinions/opinion-627/
8. Opinion 657 (Additional File Screening in Criminal Cases – Example of Attorney’s Eyes Only Information): https://www.legalethicstexas.com/resources/opinions/opinion-657/
9. Sample of Template Pleadings in the Event of Court-Appointed Custodianship, (Linked at Bottom Right): https://www.texasbarpractice.com/law-practice-management/close/