Planning for solos: traps to avoid, tips to follow

Debra L. Smith, BridgeTower Media Newswires

You’re a sole practitioner who has been looking for new space to expand, but nothing fits your needs unless you rent an office and do a build-out. You’re seeking a law office with a conference room, two offices for you and your staff, a reception area and secure storage.

You rent a space in a great location and hire contractors and subcontractors to do the work. You decide that since the space is more than 30 years old, you need to put in state-of-the art lighting and upgrade the heating and cooling system to make it energy efficient.

When you realize the cost, you go to the bank where you have your business account and take out a commercial loan. As a lawyer, you read the commercial loan document carefully, but you don’t think about what will happen if you die during the time you are paying off the loan.

John Hope, who was an elder law and estate planning attorney, rented office space facing a beautiful park in the center of Watertown. The space needed upgrading, but due to limited rental space appropriate for his firm’s needs, he signed the lease, took out a commercial loan, and hired a contractor to do the build-out.

After his lease started on Nov. 1, the contractor put in only a couple days of work and then abandoned the job to work on other projects.

To save money, John hired subcontractors to upgrade the lighting, heating and air conditioning systems. But the construction project sat unfinished, costing him monthly rent for the new space on top of his existing smaller office space.

He hired a second contractor to finish the work, including to build soundproof walls, install ceiling tiles and doors with rubber bottoms for additional soundproofing, and paint the interior space.

By the time the project was nearly done, he had upgraded the space at great expense and disruption to his law practice. He had gone over budget, causing him significant stress and taking a personal toll on him.

On April 19, 2018, with just a few days left of construction and a week and a half before the scheduled move-in date, John Hope took his own life.

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What constitutes default on a commercial loan?

On a commercial loan, such as the one John signed, default was simply defined: If you don’t make the monthly payment when it is due, or if you die, the bank can seek full payment on the loan.

The personal representative of the estate cannot pay all bills until the funeral expenses, costs of administration of the estate, and other required costs are paid, if the estate appears to be insolvent per G.L.c. 190B, §3-805, on “Classification of Claims.”

A personal representative needs to do due diligence to review all the bills before payments are made. “Manner of Com­mencement of Claims” under Section 3-804 of G.L.c. 190B should be followed by the creditors of the estate.

On May 15, 2018, three days after the payment was due, the bank where the commercial loan was taken out stated that it put a hold on the money in the estate account for the entire loan that was due.
The personal representative filed a motion in the estate matter for the bank to remove the hold on the estate account for the commercial loan. The court ruled that whether the bank had a right under the terms of the loan was one of contract law, the bank was not a party to the estate action, and such a motion could not be filed under an informal estate administration.

In reality, the bank removed the money owed to it from the estate account less than a month after John died, claiming a right to a set-off, and sent a letter to John, who was deceased, instead of to the personal representative, stating that the loan was paid in full.

The personal representative did not pursue that further, as the procedural battle potentially may have been won via an equity petition, but possibly at the expense of having the set-off considered as full repayment of the loan.

Here are practical pointers to avoid such an experience.

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Dealing with stress

Operating a small law office as a sole practitioner can be very stressful, especially when adding the responsibilities of a build-out for a new space. It is better to hire a reliable general contractor, who hires the sub-contractors, with a focus on staying on budget.

However, expect that things may go over budget, and plan for it. Don’t try to save money by hiring your own subcontractors. The stress of practicing law, combined with a build-out, is not worth losing your life over.

Enjoying your family, friends, and spouse or significant other; staying healthy; and having a roof over your head should take priority. The people in your life who care about you should matter the most. If you have stress that is interfering with your life, get counseling. Use the services at LOMAC/Lawyers for Concerned Lawyers (https://www. lclma.org; 1-800-525-0210), or contact the Samaritans (https:// samaritanshope.org; (617) 536-2460).

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Life insurance in conjunction with a commercial loan

Obtain life insurance when possible if you are taking out a commercial loan to secure the obligation for construction costs of rental space or a new building for your practice.

The bank providing the commercial loan wants to secure its money in the event of death or disability if loan payments aren’t made. If you die, the reality is that relationships — like that of the bank with the personal representative — are less important to the lender than getting its money for the commercial loan.

Because the personal representative needs to follow the Uniform Probate Code, such payments may not be made immediately for a commercial loan until he or she has enough information to determine if the estate is solvent.

If life insurance is available for the payment of the loan, then the estate could be preserved. There may be exclusions in the life insurance agreement, so that will need to be reviewed and considered when taking out a policy.

Clear employment agreements with associate attorneys

Sole practitioners who have associates, paralegals and other staff should consider using employment agreements, even if staff members are deemed employees at will.

The key is to have the employment agreement in place prior to the start of the employment. Such agreements should include terms and conditions of compensation and benefits, sick time, holidays, personal days, and paternity or maternity leave. Office policies should be established so that expectations for job performance, navigating client relationships, and conduct, for example, are clearly stated.

Sole practitioners should plan for life’s unexpected contingencies when the attorney, the associate or staff might require short- or long-term leave due to illness, family matters or sudden death.

Depending on the size of the firm in terms of staffing, the sole practitioner in Massachusetts may be required to continue paying a portion of an employee’s salary, pursuant to G.L.c. 149, §148C, such as in the case of an employee caring for a child, spouse or parent who is physically or mentally ill, or when an employee needs to address the psychological, physical and legal effects of domestic violence.

In turn, a loss of available staff may force the practitioner to hire temporary staff to ensure that clients’ cases are not neglected. To avoid the risk of malpractice claims, non-payment of wages claims, and other traps for the unwary, planning ahead and consulting with a specialist in this area makes good sense — legally, financially and from a human resources perspective.

Have a succession plan in place

If you are unable to practice law because something unexpected occurs, you need to have a succession plan in place. You also would be wise to utilize clear agreements with your associates regarding a succession plan. Merely stating wishes in a will is insufficient.

If you have an associate, you need to have something clearly stating the terms of employment for succession planning, including that the cases in the sole practitioner’s office belong to the individual attorney or the estate, and not the associate. In the event that the practice ends, the associate is not to take any paper case files, electronic case files, or any client contact information from the business without the express prior written approval of the sole practitioner or the personal representative of the estate.

It is easier for a personal representative if there is another attorney designated to take over the law practice, along with directions as to what steps to take not only with the attorney’s cases, but in terms of dealing with the disposition of furniture, books, office supplies, computers, and otherwise winding down a practice. Even nice office furniture in good condition may be hard to sell in today’s market.

Conclusion

Sole practitioners who decide to do a build-out of office space should hire a general contractor and plan for the project going over budget. They also should obtain life insurance when possible if taking out a commercial loan.

Clear expectations with associates and other staff should be set, and a succession plan should be in place in the event of death or disability.

Best efforts should be made to decrease stress and get help when needed. The objective is to have a balanced life and a law practice that runs smoothly; to stay physically and mentally healthy; and to remember that family and friends in your life should matter the most.

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Watertown lawyer Debra L. Smith seeks to help others after the loss of her significant other of 10 years, attorney John R. Hope. She is working on a book in his memory called “My John, I was his Sunshine.” She can be contacted at Lawdeb@aol.com.