You have made the decision to retire and you have started the planning process to ensure that your retirement is not harmful to your firm, your clients or your family.
The next step is to structure the procedure – starting with the formal notice to your partners.
Setting the date
If you have a partnership agreement, then the period of notice is probably prescribed. However, the formal agreement is only what we fall back on when we have to; it is much better to agree a retirement date with your partners – a date which allows proper time for the handover of clients, management functions and your precious legal knowledge (“knowhow”). Two years should be sufficient, unless you have already been working towards your planned retirement, by, for instance, passing on your most important clients to other partners.
If you do not have a partnership agreement, no period of notice is required at all. But this, surely, should be the last resort. Again, it is better to talk things over with your partners and agree a retirement date. Perhaps you can agree that, during the last two years of your partnership, you will do less work, in return, of course, for a smaller share of the profits. A planned retirement, in consultation with your partners, is more effective and less stressful than a surprise departure.
All in a minute
Since we are lawyers, the terms of any agreement will, of course, be in writing, to make sure that everybody understands what is involved. And the written agreement should cover much more than just the date of your retirement. It should also cover:
- Preparation of a set of final accounts (although, if your retirement date coincides with your firm’s accounting date, no special arrangements will be needed).
- Payment of the sums held in your capital account over a suitable period, with interest on the reducing balance.
- Payment of any other sums (in respect, perhaps, of your share of the firm’s goodwill) due either under the partnership agreement, or as part of a deal for your early retirement.
- Agreement for the transfer of property titles into the names of the remaining partners.
- An indemnity by the remaining partners in your favour in respect of all liabilities arising after the retirement date.
- Any consultancy period to follow retirement, spelling out what your duties will be, what use of office facilities etc you will have and what payment you will receive.
The minute may also deal with claims and liabilities arising before the retirement date, ongoing insurance cover under the indemnity policy, existing life insurance policies, motor cars and many other practical matters. Ideally, the minute will, for your purposes, replace the partnership agreement, so that it can stand alone for future reference.
For management purposes, the minute should also deal with questions such as:
- A procedure for handing over important clients to other partners, a process which can take 18 months or more to get right. You need to introduce the new partner, help him or her get to know the client, coach in the ways of your clients and assist with problems as they arise.
- The handing over of management functions, such as staff partner, client care partner, or cashroom partner, if you are unlucky enough to be saddled with one of these jobs. Your replacement will need training and again, the handover period should be more than a year.
- The announcement of your retirement to the firm’s clients and, where appropriate, to the local press.
Finally, the minute should also cover what you are allowed to do after retirement or after the end of the consultancy period. For example, are you planning to work for other firms in the area or set up your own little business in competition? Not everyone wants to retire completely.
Breaking it gently
The preparation of the minute is only the starting place of the retirement process. Now the hard work really begins.
First, there is a powerful need to tell your closest employees. There is no point in being secretive about this, as word will leak out anyway. It is much better if they hear it directly from you, with a request that they keep the news quiet for a while, until you have also told your clients.
Then your most important clients have to be told, personally and preferably away from the office, to make it clear that you are not charging them for the meeting. They will want to know when the retirement will take effect and how their affairs will be handled in future. Be aware that the breaking of the news may start them thinking of changing to another firm, so it may be wise to start the handover process before actually telling them about your departure.
You will also have to look through the wills box to find out how many wills appoint you as executor, a position which it may no longer be appropriate for you to hold.
Questions of ownership
This may be a suitable time to take heritable property out of the partnership completely. It may be possible for you to retain part-ownership of the offices, even if you are not a partner of the firm, by, for instance, placing the property in a separate partnership (or company) and leasing it back to the firm (although there can be tax consequences of such a move).
Property ownership by the firm can cause all sorts of problems on the retirement of a partner and it is important to tackle these problems at an early stage.
Your accountants should also be consulted so that any necessary tax planning can be put into action. For instance, if you are expecting to receive some sort of payment in respect of your share in the goodwill of the firm, this may be liable to capital gains tax or even income tax and, in family firms, there may even be inheritance tax implications to take into account if your partners are, effectively, buying you out. The tax position is potentially complex and you should take specialist advice.
You will also need some time to plan your own financial situation following retirement, including consideration of when to start drawing your pension (assuming that, following the recent catastrophic damage to your pension fund, it is worth drawing at all). You now have a wide variety of choices about when to start drawing your pension, who to purchase your annuity from and how much to draw from time to time. Again, specialist advice may be valuable.
You may also want to maximise contributions into your pension fund over the last of your earning years, to make the most of available tax reliefs.
In this issue
- Pushing ahead with a modernising agenda
- Equality for the employed
- Break point
- The devil in the detail
- The work goes on
- Identity crisis
- The lawmen in black
- Degrees of insight
- Image and reality
- Terminal settlement
- The informed client
- Counting down
- Speaking for the firm
- Does the EU Regulation work?
- Power to the people?
- Website reviews
- Book reviews
- New build: getting the loan funds
- Keeper's Corner
- RCIL and community rights