A beginner’s guide to succession planning
DENTAL BULLETIN, ISSUE 17
Have you ever thought about what will happen to your practice in the event of your death? Who will look after your business should you be incapacitated for a temporary period?
With recent press reports heralding the news that we will be working far longer before retirement, the issue of death in practice is sadly likely to become more prevalent. Understandably, this is a topic that few people want to discuss, let alone plan for. However, if you do not put in place the necessary arrangements, it can cause further heartache to your family during a time of grief.
Although we all try to avoid them, sometimes accidents and unexpected events occur which prevent us from running our businesses. Whilst your individual skills and expertise may not be readily replaceable, a Lasting Power of Attorney (LPA) could be crucial in safeguarding your business during any period of unplanned absence.
An LPA appoints a chosen person, known as an attorney, to make financial and business decisions on your behalf in circumstances where you are unable to. The appointment of an attorney with knowledge of your business and profession will enable them to ensure the smooth running of your practice by paying salaries, appointing locums and ensuring that bills are paid.
Two types of LPAs: General and Lasting
The benefits of a General LPA are that with some advance planning they can limit the types of decisions made by your attorney, as well as providing guidance for them to follow when decisions are made. They can also be executed at short notice and adapted for different scenarios.
A Lasting LPA is generally used when a person lacks capacity, however, this does not prevent them being used in business scenarios. The downside of a Lasting LPA is that they do not come into play immediately and need to be registered before they can be used.
Having a LPA in place will give you and your family at least some peace of mind that your business is in safe hands, allowing you to focus on whatever may have caused the unexpected absence.
In the unfortunate event that you die before you have retired do you know:
- Who would take your share in your practice?
- Would your beneficiaries ‘inherit’ your practice?
- Can your executors and trustees maintain your practice through the application for a grant of probate?
The only way to ensure that your wishes are acted upon is through a Will. Without a Will there is no guarantee as to who will benefit from your estate. We strongly recommend you to read our article 5 Fundamental reasons to have a will for further information.
Working under a partnership agreement
If you work in a Practice under a partnership agreement, one of the benefits of entering into such an agreement is that terms can be written into it which specifically include the requirement of a partner to co-operate in any sale of the business, or your share of it, post death. It can also give the other partners the right to purchase your share of the business. This will ensure your family benefit from all your hard work over the years.
If you do work in a partnership you should consider Key Person Insurance. On death, the insurance will:
- Pay out a lump sum to ‘purchase’ your share of the business. You can decide who this lump sum is paid to;
- It allows the business to continue running;
- It potentially avoids your personal estate becoming liable for any business debts.
Having a NHS Practice
If you have an NHS Practice, the terms of a GDS or PDS contract state that where there is a sole contractor that contract will automatically terminate 28 days after death. This period can be extended by 6 months so long as the family or personal representatives of the contractor notify the Local Area Team (LAT).
The primary concern for sole contractors must therefore be whether their family and/or personal representatives are aware of their obligations. Failure to extend the 28 days will inevitably lead to the termination of your contract and possibly mean the end of your business before a potential successor has been found, let alone any purchase completed, resulting in your family not receiving any financial compensation in respect of the goodwill that you have worked so hard for.
28 days may ordinarily seem like a long time but when your personal representatives are likely to be grieving and dealing with your other affairs it may not in fact leave much time at all.
Ensuring that you have an up to date Will with specific reference to the importance of the notification is one way in which you can ensure that your business affairs can continue after death, or at least be wound up in a way which best preserves the goodwill and reputation for your family. At the very least it buys your estate more time to decide whether to continue the business or to begin transferring patients elsewhere.
Partnership with another contractor
Another solution is to enter into partnership with another contractor. Whilst the obligation to notify the LAT of the death of a contractor within 28 days still applies, the contract is able to continue with any surviving contractors undertaking the deceased’s UDAs, either personally or via a locum.
Where there are multiple contractors, for example in a partnership, the LAT will still need to be informed within the 28 day period but clearly in those circumstances the business is likely to be able to continue.
Whilst the thought of succession planning may be overwhelming, it is in fact often a simple process. Much of the work can be done via questionnaires, email or telephone.
Duncan Roberts, Solicitor