A sole practitioner is admitted to hospital unexpectedly. There is no one with authority to access the trust account, no one who knows the alarm code for the office, and 30 open client files with no instructions about where they should go. The practitioner's family must immediately manage a legal practice they know nothing about while anxious and possibly grieving, if the practitioner dies.
Every sole practitioner needs a succession plan. Without one, clients are left unprotected, urgent files stall, and the practitioner's legal personal representative faces an overwhelming task with no roadmap.
Why a plan matters
When a sole practitioner dies or loses capacity without a plan in place, the consequences are immediate and concrete.
- Client matters with court deadlines or pending settlements can lapse, creating liability for the estate.
- Trust money may be inaccessible until a manager is formally appointed, a process that can take weeks.
- Obligations to notify the Legal Services Board (LSB) of the practitioner’s absence are likely breached
- The LSB may appoint a manager to the practice at the practice's cost if client interests are not being protected.
- A practitioner who buys the practice may inherit liability for claims against it.
Despite these risks, many sole practitioners have no written succession plan and no enduring power of attorney covering their practice.
Two risks, one plan
Sole practitioners face two related risks that a single succession plan addresses:
- Death. The practitioner's legal personal representative (LPR) must immediately manage a practice they may know nothing about.
- Loss of capacity. Without an enduring power of attorney (financial), no one has authority to act for the practitioner, and the LSB may need to intervene.
The plan described below covers both scenarios.
What the LPR must do
When a sole practitioner dies or is incapacitated, the LPR has four immediate obligations:
- Notify the LSB. If the practice is an incorporated legal practice (ILP), the LPR must notify the LSB within 7 days. Under s 106(2) of the Legal Profession Uniform Law (Schedule 1 of the Legal Profession Uniform Law Application Act 2014 (Vic)) (Act). An ILP without a legal practitioner director for more than 7 days is taken to contravene the Act.
- Notify the LPLC. Give written notice of the death or incapacity to the LPLC as soon as possible.
- Arrange care of urgent files. Identify a local practitioner willing to act as an informal manager until the practice is sold or closed. The LSB recommends the LPR advise it of any proposed informal manager so the LSB can assess their suitability.
- Notify clients and service providers. Contact all current clients and key service providers in writing about the changes.
An LPR who has a written succession plan can complete these steps in days. Without one, it can take weeks.
What to do with the practice
The LPR must decide whether to sell or close the practice:
- Selling. The purchaser typically takes over open files. All current clients must be notified. Deed packets and closed files may transfer to the purchaser or remain with the LPR.
- Closing. The LPR must contact every client with an open file and obtain instructions about where to send it. The same applies to deeds held by the firm.
Closed files and destruction
Whoever holds closed client files must retain them for at least seven years or obtain the client's instructions to deal with them earlier (Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015, Rule 14). After seven years, files may be destroyed if the firm obtained clear client instructions or made reasonable efforts to do so.
Many sole practitioners include a clause in their retainer letter stating that the client consents to file destruction seven years after the file is closed unless the client objects in writing. Sole practitioners should record when this clause was first included, so the LPR knows which files can be destroyed on that basis.
Some files should never be destroyed, including original wills, deeds and documents held on trust.
Claims after death or sale
Where the practice is sold, the purchaser may be liable for claims subsequently brought against the practice.
Where the practice is closed, any claims against the deceased sole practitioner are dealt with by the LPLC under the terms of the run-off policy, which provides ongoing cover after the practice ceases.
Build a succession plan now
Complete the following steps before the next annual practising certificate renewal. Treat this as a recurring annual task, reviewed each year alongside the renewal and LPLC insurance.
The succession plan should be a written document, kept with the practitioner's will, covering five areas:
People and access
- Name and contact details of a practitioner willing to assist the LPR or act as informal manager.
- Keys, alarm codes and safe combinations for all premises and storage.
- Passwords for all computer systems, practice management software, email, digital signatures and bank accounts.
Files and records
- Location of all open files, closed files and deeds register.
- The date from which the file destruction clause was included in retainer letters.
- Location of the practitioner's diary system, whether hard copy or electronic, and any access credentials.
Contacts and notifications
- Contact details for the LSB, the LPLC, employees, clients, suppliers and membership bodies such as the Law Institute of Victoria.
- A draft letter for the LPR to send to clients and contacts notifying them of the practitioner's death or incapacity.
Insurance and finances
- Copies of all business insurance policies, including professional indemnity.
- Details of any outstanding insurance claims or disputes involving the practice.
- Tax returns for the last seven years.
Property and contracts
- Title documents or the original lease for the practice premises.
- Details of all service contracts, including photocopier, IT and cloud storage agreements.
Appoint an enduring attorney
A sole practitioner who loses capacity without an enduring power of attorney (financial) leaves their practice in limbo. No one can access the trust account, instruct staff, or manage client files until a formal appointment is made, a process that takes time and puts clients at risk.
When completing the succession plan, also execute an enduring power of attorney (financial) that expressly authorises the attorney to manage the legal practice. Discuss with the proposed attorney what steps should be taken if capacity is lost and ensure they have access to the succession plan.
Practitioners should also refer to the LSB's Practice Contingency Planning Policy for further guidance.
The one thing to do today
If you don’t have a succession plan diarise time in the next month to complete a written succession plan and store it with the practitioner's will. A plan that takes an afternoon to prepare can save clients, staff and family weeks of uncertainty and significant cost.
If you do have a success plan diarise time in the lead up to your next practising certificate renewal to review it.
