ALPS In Brief - Episode 73: The Ethical Obligation of Succession Planning

Mark Bassingthwaighte: 

Hello. I'm Mark Bassingthwaighte, the risk manager here at ALPS, and welcome to ALPS In Brief, the podcast that comes to you from the historic Florence building in beautiful downtown Missoula, Montana. 

I'm delighted to have, as my guest today, Bill Harvit, and Bill is the chairman of the Succession Planning Committee at the West Virginia State Bar. And I'll tell you, as a risk guy, succession planning is a huge issue, and it seems to me, in recent years, more and more states are starting to move a little bit on this topic, and for good reason. 

Bill and I are going to have a chat about succession planning, and I thought it'd be fun to have Bill not only because of his involvement with the committee and all this going on in West Virginia, but I think, folks, it's important, too, to hear from another practitioner, from somebody that's out there. I've been in this risk management space for 25 years, and I'm sure some of you are tired of hearing just from me, and I like to have different types of thoughts. Before we jump into this, Bill, may I have you take just a moment and introduce yourself. What do listeners need to know about you? 

Bill Harvit: 

Oh, probably not a lot. No, I'm teasing. I've been practicing law for ... this is my 37th year, coming up on 37th year. I've represented both plaintiffs and defendants through the years, but principally, I've been involved in toxic torts, mass tort litigation, through the years. And, unfortunately, I had a situation, back in 2017, that thrusted me into this succession planning situation, and Mark, it's not because I didn't prepare. We thought we were prepared and we were not. It's a very important topic. I thank you and ALPS for focusing on it. And, listen, to the extent I can help anybody not go through what I went through, I'm happy to do so. 

Mark Bassingthwaighte: 

Are you able to share a little bit about what happened and what brought you into this? 

Bill Harvit: 

Sure. I had been practicing, in fact, I had a firm for 25 years, and my partner and I, as I said, did a lot of mass tort litigation. And literally, one day, I'm not kidding, in April of 2017, I knew he was having some issues, but he walked in and literally said, "I'm done," and walked out, and we had about 5,000 files that were open, again, because we did mass tort litigation. They weren't all 100% open. Some were just waiting on settlements and bankruptcy defendants and things of that nature. It took me two and a half years to wind down that firm and deal with all of the issues that, hopefully, we're not going to get to all of them, but hopefully at least touch on a number of the issues. I lived it, and I will tell you it's probably one of the most stressful times in my life. 

And, just in this same vein, that happened to me as a lawyer, but it also happened to me as a non-lawyer. When my father passed away, he and my mother operated a small women's clothing store in southern West Virginia, and not unlike a small law firm, they each had their own duties and responsibilities. And, when he passed away, of course, they had no succession plan, and I had to step into that. I've learned it both as a lawyer and as a non-lawyer. 

Mark Bassingthwaighte: 

Well, what I appreciate about this story is there's this temptation, as I see it, among the bar at large, is succession planning really is an issue that we need to focus on in terms of solo lawyers and the rest of us don't really need to worry about that. And you are so right. I've seen problems in firms of five, eight, 10 lawyers where we have these unexpected, unplanned for transitions, whether it's an untimely death or somebody just saying, "I'm done." All kinds of things can come up here that create some problems. 

I was also interested, as we were talking a little bit via email, you had mentioned that West Virginia is in the process of considering some rule changes, and specifically, as I understand it, really making it clear that the obligations to plan for one's succession, it does go beyond the solo space. Am I correct in that? 

Bill Harvit: 

Yes. Yes. And the reason, let me just cite a couple of statistics, Mark, and you probably know these, but I was a little surprised by them. But, according to the ABA profile of the legal profession in 2022, 40% of lawyers are over the age of 45 and the median age is over 46. The other interesting fact to me, from Thomson Reuters, was that 85% of lawyers are in firms of 10 or fewer and 60% are in firms of three or fewer. And what happens in those situations, I lived it, is when there's a triggering event that disrupts one of the lawyers, then it falls on the others. And I can tell you, I was unable to take new cases, I was barely able to finish the ongoing cases I had because of all the issues that I had to immediately address. 

And, listen, these are not isolated events. People think, and when they think of triggering events, they think of death or maybe disability, but triggering events can even include technological disruptions. There's a lot of talk about AI and generative AI, and there is going to be disruption in many areas of our field. There are a vast number of triggering events that can affect the operation of small firms. 

But, yes, you are correct. West Virginia is looking to expand the rule to five or fewer because, let's be honest, the economics of the practice of law often dictates, in small firms, that each lawyer practice in a separate area, and that was the case in our firm. But, if you've got one lawyer that's doing domestic relations and another that's doing personal injury, another doing bankruptcy, and then you have a lawyer that's doing something else, say, securities work, well, none of those other lawyers are going to be, I think, competent to handle those files. That's why it really does affect small law firms as well. 

Mark Bassingthwaighte: 

I love the term triggering event. I think that is an outstanding term. But you're so right, and folks, I just want to underscore coming at this from a risk perspective, again, "Well, we're a family here. We've got four or five lawyers and good staff and all, and there really isn't ..." But what does happen if we're a firm and I'm the divorce lawyer and I'm out for whatever the triggering event is and I'm out permanently, can you appreciate the challenges that this puts everybody else in? We really do, I should say I really do, and outside the group, believe this, we really do, as a profession, need to take this issue very seriously and do something. 

But, now then, the question becomes, Bill, what does that mean? Where do we start? I'm sure you get some calls and some conversations, I hear this a lot too, and is there a difference, I should say, between what a solo needs to do or what a small firm needs to do in terms of where to begin? What are your thoughts? 

Bill Harvit: 

Well, before I address that, let me tell you what happens if you don't begin the process. In West Virginia in particular, Rule 3.9, administrative rules, is going to require the Supreme Court to appoint someone. As we sit here today, we all have the privilege of making these very difficult decisions while we're in what I call business mode. While things aren't normal, nothing's normal in the practice of law, but while things are basically normal in our lives and we can devote the time to it, if we don't do that, then either we or someone else appointed is going to make those decisions when we're in what I call crisis mode. 

And, when you're in crisis mode and you're making decisions, or someone else is making decisions, about whether you need an extended reporting endorsement, for instance, and I'm not plugging ALPS here, but it's a very important issue, and we can talk about that. It's hugely important. But, if you're in crisis mode, or some third party's making that decision for you, then you're in trouble. Now's the time to seriously get started doing that, and it's not easy because this is more of a process than it is an event. And I try to break up succession planning into basically two stages, what I call short-term succession planning, where you're going to get in place the people you need, you're going to do what's necessary to protect your clients, your heirs, your staff, your co-counsel, your partners, and we can talk about that and focus on that, and I think we should immediately. 

But there's also a long-term component to this where, and again, it takes time, but where you preserve and enhance the value of your firm, which, a lot of times, is one of the most important assets a lawyer has, in order to transition that firm to new people, whether it's from retirement or whether it's because of a triggering event. We'll never get to the issues on the second part because it just takes so much more time to talk about. 

Mark Bassingthwaighte: 

Well, let's talk about these short-term, more immediate things. What comes to mind? I'm reaching out to you and saying, "Hey, there are two of us here, and we understand, but I have no clue what to do." Where do we start? 

Bill Harvit: 

Well, there's quite a bit of literature out there. In fact, I just did this, in fact, I wrote it down, I wanted to look, if you ever use Google Scholar on the peer-reviewed literature, well, I had to do this before our podcast, I entered in Google Scholar, I entered succession planning and limited it just to the last 10 years. There were 84,000 articles on succession planning. Then I thought, "Well, okay, those include just general business, so let's limit it to law practice succession planning." Well, there were 28,100 peer-reviewed articles out there. 

There's plenty of literature just that's available, but also I would encourage people to contact their bar associations. We're, I think, pretty progressive about moving this issue forward. Oregon, the Oregon State Bar has some wonderful documents online. Again, I think West Virginia has good documents. We're still working on some of ours. Virginia has some really interesting documents on how to incorporate the successor into your will, durable power of attorney, things of that nature. Really, the first step is appointing a successor, and I think you got to give that a lot of consideration. And that's going to, I think, depend upon the type of practice you have, how many partners you have, how many cases you have, and that sort of thing, because you want to appoint someone who's competent in the area of the cases that you handle. 

Mark Bassingthwaighte: 

Exactly, and that's an obligation. That's an ethical obligation. You can't just go out and find anybody. I want to underscore, folks, again, we are talking about small firms. If we could go back to I'm the divorce guy and nobody else in the firm does divorce, I know who in the area we could reach out to, and I should take on that responsibility, here are a couple of names, and perhaps I agree to do this for another colleague, another divorce attorney in another firm. It can be reciprocal in other words, but don't leave this, don't leave this. It can create all kinds of unexpected headaches. 

The other thing that I want to underscore for all of you is I've had lots of conversations over the years with particularly solo attorneys in all the consulting work that I've done, and even in a lot of the lecturing around the country, but it's awfully hard to find somebody. And let me share a couple of thoughts, because I think part of the problem is there's a misunderstanding about what the ask is. There's this fear, and I'll just make this as a solo because that's the most obvious or clear example, there's this fear, if I pass and Bill is going to be my backup, my successor, that, well, that means that Bill's going to come into my practice, take it over and run the practice, and he's already got his own full-time practice. That's not what the ask is. The ask is to administer the winding up or the transition of my practice. Sometimes this could also be solos agreeing to do this for each other. 

You have backup attorney possibilities that can come into this as well. But here's another thought. There's no rule that says I just have to find some guy like Bill to agree to do this. I've been involved in situations where four or five solo attorneys get together as a group and just say, "We'll share these responsibilities." Turned out there was a situation a number of years ago where a lawyer was a member of a five ... group of solos that agreed to be the successors and backup for each other. And one of the younger guys, was early fifties at the time, was involved in a deadly climbing accident, and the other four guys stepped in and divvied up the duties. And it was a very smooth transition, was very emotionally hard for them all, they were all great friends, but the process worked. 

I'll just share some thoughts there. Please don't hesitate to say yes, really understand what your obligations are. I want to be clear about that. Bill ... 

Bill Harvit: 

Well, let me just add something there- 

Mark Bassingthwaighte: 

Yes, please. 

Bill Harvit: 

... because when I said and mentioned finding someone competent to handle your files or to transfer your files, that's not my requirement. That's the rules of ethics requirement. If you look at Rule 1.3 under diligence, comment five, it specifically says, "In the event of death or disability, the duty of diligence may require a plan that designates another competent lawyer to review client files, notify each client of the lawyer's death or disability, and determine whether there's a need for immediate protective action." I'd love to take credit for it, but that's not my original thought. 

But let me talk a little bit about some of the things that a successor is going to need to do. 

Mark Bassingthwaighte: 

Okay. Please. 

Bill Harvit: 

Yeah. I have a good buddy up in the northern part of the state, he and I went to law school together, and years ago, if he would've called me and said, "Would you be my successor?," I would have, knee-jerk reaction, absolutely would've said yes. He's more than two hours away from me. I never would've given thought to some of these issues, and now that I have, it just wouldn't be reasonable for me to do it. 

The duties of a successor, number one, are to review the files as soon as possible and triage those files to determine if any clients need assistance immediately. They're going to have to notify those clients immediately because, under the rules of ethics, the client has to approve of the lawyer who's going to handle the file. Triaging those files, extremely important, and talking with the client. What if the client says, "No, no, no, I've got another lawyer that I want to handle it?" Well, that succession lawyer is going to have to prepare that file and get it to that client as soon as possible, probably going to have to notify the court if there's an ongoing matter. All of this is not going to be done in a day. It's just not going to happen. 

If there's property that the attorney has, and I'm not talking about closed files, I'm talking about open files, that needs to be returned, whether it's money, whether it's original documents, those are going to have to be returned to the clients. And then later, obviously, there's going to have to be an audit of the client trust account. You would hope your successor is going to collect any outstanding fees and expenses in cases, but they're going to have to know where to look to find that information. They're going to have to do an accounting, a final accounting, probably prepare tax documents, close bank accounts, and here's a big one. They're going to have to review your files to determine which files have to be retained, for how long they have to be retained, and in what form they need to be retained, and this is huge. And I'd like to talk more about that, but there also may be other things specific to your particular practice that a successor's going to have to do. 

Mark Bassingthwaighte: 

Okay, and thank you for sharing all that. My response, as a risk guy, folks, understand what Bill is sharing, in my mind, creates another proactive step that we need to take. Not only do you need to name a backup attorney, it really becomes, I think, a responsibility to develop some type of informational manual, some type of procedure. It's like, "Here are the passwords to get into the key systems. Here are the key systems. This is how the office works." What I would encourage you to do is ask yourself, say, "If I had to walk into my practice today not knowing ... what do I need to know?" You see what I'm trying to go? You know what your practice looks like. 

You really need to set forth just an instruction manual, for lack of a better term, on everything the next guy coming in will need to know to do the things that Bill just set forth. Absent those kinds of instructions, it can be far messier than it needs to be. I've been involved in situations where they absolutely had no idea what the passwords were to get into anything, and you're spending time and money, precious time and money. There may be a fire, in other words, in a client file, but if you can't get into this, they're trying to pay somebody to hack in and break it, see what we can do, and that's just crazy. What- 

Bill Harvit: 

Well, Mark, not to interrupt you, I'm sorry, but I have a list- 

Mark Bassingthwaighte: 

Please. 

Bill Harvit: 

... I have a half a page list here of things, but I won't read them all, but you're exactly right. If your successor doesn't know where the information is that they're going to need, then you're just slowing the process down. And let me just mention- 

Mark Bassingthwaighte: 

Please. 

Bill Harvit: 

... something about funding, because this, to me, is huge because people don't think about this, but during a transition from a triggering event or even retirement, you are going to have to have money to operate that firm. In my case, it was two and a half years, and we were fortunate enough that we had money coming in on cases that I could afford to do it the right way. But let me talk about some of those expenses if I may, because, when that triggering event happens, that office has to continue to run. Your key personnel have to continue to be paid salary and benefits, mortgage has to be paid, all of the operating expenses, who's going to pay for that? If you buy life insurance or disability insurance, most of the time, the lawyer is buying that to protect him or her and their families. They're not thinking about using those funds to transition their office. Those are huge, but let me point out some of the other expenses that I learned about. 

Our firm, as I said, was 25 years old. We had taken over from some older lawyers that had retired. As a result, we literally had thousands of files that were in paper form. And it's not because we didn't periodically review them, it's because we had files where we represented infants, we had estate files, my predecessors did a lot of estate planning, so we had to keep those files, proprietary business information that was in files where we had represented businesses. And let me mention something again, you and I haven't talked about this, I have no stock in ALPS, if there is even stock, I'd have no interest, but if you don't maintain a file that you have a potential claim on, then you're likely to run afoul of the insurance company, because if you go out or your successor destroys a file that you got a bunch of notes in that you need to defend yourself for a claim of negligence or other malpractice, you're in trouble. 

It's not only the infant files and settlement documents, estate, somebody's got to go through those files and determine what you're going to keep. Now maybe I'm talking too much, but I want to get this out. We had so much paper that I wanted to convert it to digital because I didn't want to pay to store it anywhere. The cost of converting it to digital shocked me. It was $35,000. Well, if you don't have a sinking fund or some way to pay for this, don't expect your successor to pay for it. Your heirs are going to end up paying for it. There are different mechanisms that can be utilized to set up a sinking fund or provide funding to do that. But these expenses are huge. 

And one more I'm going to mention because it was another huge one, and that was the extended reporting endorsement. And, again, I have no connection to ALPS, but because of the type of practice we had, it was important for us to purchase an extended reporting endorsement, and it was quite expensive. And the other point I'll mention about that is I think we had maybe 30 days to make that decision. Some of the policies, I've been told, you have to make the decision when you cancel the insurance. That's right. 

Mark Bassingthwaighte: 

That's right. 

Bill Harvit: 

Is your successor going to know that? These are huge issues that affect not only you, but your family and others. Anyway, I'll let you talk now. Sorry about [inaudible 00:27:13]. 

Mark Bassingthwaighte: 

Well, it underscores, and when we talk about the extended reporting endorsement, that's tails, a tail policy is what the vernacular is, but there is no such thing. It's not a policy. It's extended reporting endorsement to the final policy that's enforced. But, again, my takeaway from what you're sharing, Bill, is these expenses, instructions, letting people know about the insurance company, and timing and all these things, if you don't do this, particularly, again, in the solo space, but it's not limited to the solo space, zero planning, what ends up happening, you dump this on the lap of an unsuspecting spouse. And I have talked, more than a few times, these unsuspecting spouses that are just grieving and so angry, so angry, "How dare my spouse leave me with this mess?" And you know what they end up doing? They end up getting a truck and just throwing everything away, files, everything. 

Heaven forbid a claim comes up and there's no file and nobody thought to call the carrier and get a tail. Now what you've left your spouse may not be what you think it is or had hoped it would be if there's a viable claim here. I am not making things up. Again, I just want to underscore the importance of being proactive about succession planning. 

Now, Bill, we're coming up here on the end of what we have time for today. Is there a final comment you have before I jump with a final comment? 

Bill Harvit: 

Yeah. You mentioned the spouses, and I just want to not make it about me, but I do want people to understand, as a [inaudible 00:29:14]-year-old kid just out of college and my father passed away, here I was in crisis mode trying to deal with that store, the most stressful time in my entire life. Think about that for your spouse and your family when you're not planning for what's going here. The two important points are get started on the process now, not today, yesterday, get started on the process, and the other important piece is think about how you're going to fund it, because that's huge. 

Mark Bassingthwaighte: 

Yeah. Yeah. I absolutely agree, absolutely agree. Well, thank you. My final thought is just to say, Bill and I could sit here and chat for easily another hour, there are just so many things to talk about, but I want to underscore Bill's comment. There's a lot of resources available on the ALPS website, alpsinsurance.com. Look under resources, we have a succession planning page. Many state bars have followed suit with what Oregon did a number of years ago, and there are some guides out there that are outstanding. I think most of the guides come under this heading of succession planning, planning for your death or disability, and are available through state bar websites. 

And, if your own bar doesn't have anything available, don't hesitate to look at other bar websites. These resources are easily usable in your own jurisdiction. You may need to change some language a little bit from South Carolina to West Virginia or something like that, but that's an easy ... 

Folks, I hope you found something of value today. I do appreciate your listening. Bill, it is a pleasure to have you join me. Thank you for taking a little time out of your day. Maybe we can do this again at some point. I'd like to continue the conversation. There's so many things- 

Bill Harvit: 

Mark, I would love to, I would. It's so important, and I really appreciate ALPS focusing on this. 

Mark Bassingthwaighte: 

Well, we're trying to do what we can. After all these years, I've seen too many situations where just being a little proactive in planning could have changed some things. 

That's all we have time for today. Folks, thanks for listening. Appreciate your coming. Bye-Bye.