Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Sunday, January 19, 2014

Article on Exit Planning


Daniel H. McCarthy (Wick Phillips Gould & Martin, LLP), William P. Prescott (Wickens, Herzer, Panza, Cook & Batista Co.), & Steven B. Gorin (Thompson Coburn LLP) recently published an article entitled, Exit Planning for Professionals, Probate & Property Vol. 28 No. 1 (January/February 2014).  Provided below is the beginning of their article: 

Estate and succession planning for a professional can present a set of challenges to advisors different from the norm.  Because professionals are required to be licensed, and state professional regulatory authorities limit ownership to licensed professionals, a professional does not have the ability to pass ownership to future generations unless the professional’s children happen to follow in his footsteps.  In most cases, the professional will need to plan an exit strategy that involves the transfer of his ownership interest to other partners or an associate. 

In many instances, professionals forming a new entity together in which to practice may not want to think about exit scenarios.  But a new entity’s formation is often the best time to address these issues.  A well-drafted agreement among the owners will set forth both the methodology for computing a buyout price as well as the various triggering events that would cause a buyout, such as retirement, death, disability, a desire to practice with another group, the loss or suspension of professional license, or for other reasons.  The buyout price can differ among the various scenarios, and the price can be expressed as a percentage of the buyout valuation.  The agreement should also set forth how and when payments will be made to the professional exiting the practice.  As discussed below, choice of entity does affect the form a buyout can take, as well as the income tax consequences for both the remaining professionals and the retiring professional.


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