Planning for Retirement The Next Chapter—But Not the Final One

Alain Montgomery, JD
Staff Attorney
The Therapist
September/October 2021

Introduction
As a therapist you may have spent years, if not decades, shepherding individuals through the rugged terrain of their lives to help them reach places of understanding, clarity, acceptance, and awareness. And when you retire, you hope to reflect upon your career as a licensed marriage and family therapist (“LMFT”) and remember those years as being fulfilling because your capacity to hold space for others, empower individuals, and impart wisdom was fully and richly engaged. If you are contemplating retirement, there are many things to consider with respect to your license and the winding down of your practice. This article addresses your options for managing your license upon retirement, your ethical responsibilities to clients during termination, your obligation under California law to retain client records, whether or not it is necessary for you to maintain malpractice insurance after retirement, and what is involved in closing and/or selling your psychotherapy practice.

Managing an MFT License Upon Retirement
The Board of Behavioral Sciences (“BBS”) provides an MFT licensee with three options for managing your license upon retirement: maintain an active license, deactivate it, or retire it. What you envision doing in retirement will dictate how you choose to manage your license in the future. Understanding the implications of each option will help you make an informed decision that is tailored to the vision you have for yourself in retirement.

Maintain an Active License
Licensees who want to retain the ability to provide psychotherapy in any type of setting and/or to act as a supervisor who signs off on hours of experience toward licensure for an MFT trainee or registered associate must maintain an active license. An active license permits an MFT to provide psychotherapy so long as the license is valid. To maintain a valid license, the licensee must complete 36 hours of continuing education within the two years prior to its renewal date, submit a renewal application (check the “Active Renewal” box), and pay the appropriate fee. The license must be renewed by the expiration date to prevent it from becoming delinquent. After three years of delinquency, the license will be cancelled. It is illegal to practice or supervise with a delinquent license or to collect payment from a client, an insurer, or a third party for services performed.

Place the License on Inactive Status
Licensees who want to retain the ability to provide psychotherapy in exempt settings (e.g., a nonprofit charitable organization, a governmental entity, or an educational institution, each with its own requirements) or who are uncertain about their plans can place their license on inactive status. These licensees are permitted to render therapeutic services in exempt settings but cannot act as a BBS supervisor who signs off on hours of experience toward licensure for an MFT trainee or registered associate in those settings.1 During the period the license is inactive, the licensee is not subject to any continuing education requirement to renew. A licensee can renew an inactive license indefinitely without penalty by completing the renewal application (check the “Inactive Renewal” box) and submitting the appropriate fee. An MFT with an inactive license must renew by the expiration date to prevent it from becoming delinquent. If the inactive license is delinquent, the licensee is not entitled to collect payment from a client, an insurer, or a third party for services rendered. A licensee can reactivate a viable inactive license by submitting an “Inactive to Active License Status Change” application, completing the appropriate continuing education requirements, and paying the renewal fee.

Apply for a Retired License
Licensees who want to retain the ability to provide psychotherapy in exempt settings and who do not want to be subject to any license renewal requirements may submit a “Retired License Application.” Under a retired license, the licensee is not entitled to collect payment from a client, an insurer, or a third party for services rendered. Also, a licensee cannot supervise for the BBS or sign off on hours of experience toward licensure for an MFT trainee or registered associate. Licensees under a retired license can reactivate their license within three years of the retired license issue date by completing fingerprinting and continuing education requirements, submitting a “Retired to Active License Status Change” application, and paying the appropriate fee. A retired license older than three years is no longer eligible to be reactivated. To obtain an active license after three years, the licensee must apply for licensure as though for the first time, a process that includes meeting all current education and supervised experience requirements and passing all applicable licensing examinations. Per the BBS, a licensee with a retired license can continue to list their license type so long as the word “retired” is included (e.g., “Jamie Garcia, LMFT, Retired”).

Regardless of how you choose to manage your licenses upon retirement, it is recommended that you carefully consider the limitations of each option and understand what is required to prevent the license from being cancelled. If a license is cancelled, you will have to reapply for licensure, meet all current requirements, and pass all licensing examinations. More information about how to manage a license is available on the BBS website along with all applicable forms: https://www.bbs.ca.gov/licensees/manage.html.

Terminating With Clients and Facilitating Continuity of Care Upon Retirement
If you decide to close your psychotherapy practice or retire, one of the most important parts of either process is notifying your clients and terminating your therapeutic relationship with them in an ethically appropriate manner. The CAMFT Code of Ethics encourages therapists to maintain practices that provide undisrupted care and to use sound clinical judgment when terminating therapeutic relationships.²

Notify Clients
First, closing a psychotherapy practice and/or retiring requires terminating with clients in an ethically appropriate manner that involves notifying them and facilitating continuity of care. Neither the law nor the CAMFT Code of Ethics dictates the amount of advance notice a therapist is required to provide. Therapists must use their best judgment to determine reasonable notice. This will depend on factors such as the therapist’s theoretical orientation and client population. Depending on how long your practice will remain open, you may consider whether it is clinically appropriate to take on new clients during this time. It may not be appropriate to establish a therapeutic relationship with a new client without knowing whether you will have the time to assess the client adequately, formulate an effective treatment plan, and help them achieve their treatment goals.

Provide Clients With Meaningful Referrals
Second, it is imperative, where applicable, to provide clients with meaningful referrals based on their therapeutic needs. Neither the law nor the CAMFT Code of Ethics specifies the number of referrals that a provider is required to offer a client upon termination. However, best practices include providing the client with referrals to other suitable mental health care providers or, if the client is an insurance enrollee, referring the client back to their health plan or insurance carrier.

Provide Clients With Any and All Relevant Contact Information
Third, it is necessary to provide clients with appropriate contact information so that they know who to contact if they need to request a copy of their clinical record in the future.

Final Thoughts on Terminating With Clients Upon Retirement
While there is no standardized process to follow when terminating with a client, therapists are required to act in a manner that is consistent with the applicable standards of care. Therapists are expected to manage the termination process with the degree of skill, knowledge, and care that would be exercised by other members of the profession when practicing under similar circumstances.³ For further reading on the topic of client termination, review “Parting Ways: Anticipating and Avoiding Problems During Termination” by CAMFT Staff Attorney Michael Griffin.

Consider the Benefits of a Professional Will
Even a well-planned strategy can be met with unforeseen circumstances. Having a professional will can give you peace of mind if you become unable to fulfill your professional obligations. For further reading about professional wills, review “Prepare for the Unexpected by Having a Professional Will” by CAMFT Staff Attorney Alain Montgomery.

Retaining Client Records After Retirement BBS Statutes and Regulations require marriage and family therapists to retain client or client health service records for a minimum of seven years from the date therapy is terminated. If the client is a minor, their health service records must be retained for a minimum of seven years from the date they reach 18 years of age.⁴ However, California law does not specify how a provider is permitted to, or should, store client records, whether written or electronic. Thus, a retired licensee who no longer maintains an office should take reasonable measures to protect client records—whether kept in hard copy, electronic, or digitized form—from security threats to ensure the confidentiality of clients’ health care information. If you are a covered entity, then HIPAA privacy and security standards will apply. As mentioned earlier, even after retiring a therapist may field requests for client records from clients and/or via third-party subpoena. So you’ll want to consider which storage methods will allow you ready access to client records should they be requested or subpoenaed at some point within the time frame that records are required to be maintained.

Maintaining Malpractice Insurance After Retirement
Upon retirement many MFTs will try to mitigate, if not eliminate, unnecessary recurring business expenses, such as malpractice insurance premiums. The concern for retired licensees is whether they will be afforded protection against claims or malpractice suits filed after their malpractice policy ends. This largely depends on whether it’s an “occurrence-based” or “claims-made” insurance policy. An occurrence-based policy includes lifetime coverage for incidents that occur during the policy period regardless of when the claim is reported. So under an occurrence-based policy you are protected so long as the incident occurred while the policy was active. In contrast, a claims-made policy only covers incidents that happen and are reported during the time the policy is active. So under a claims-made policy, if the policy has been cancelled you are uninsured—unless you have what is referred to as “tail coverage.” Tail coverage protects against claims or suits for causes of action that arose during the time the policy was in effect but that are reported or filed after the insurance policy ends. It’s a good idea to confirm with your malpractice carrier which type of policy you have. If you have a claims-made policy, ask if you are eligible to purchase tail coverage. You may ultimately decide to maintain some form of malpractice insurance policy after you retire and/or close your practice if you anticipate that you will resume seeing clients at some point.

Closing or Winding Up a Therapy Practice Upon Retirement Each type of business entity is unique. How a business is structured determines the steps that need to be taken to legally dissolve or wind up the business.

Sole Proprietorships
As a business entity, a sole proprietorship is not distinct from the person who owns and operates it—there is no legal difference between the sole proprietorship and its owner. The owner’s debts and legal obligations cannot be transferred to anyone else,5 nor can the sole proprietorship as a whole be sold or transferred, but its tangible and intangible assets (i.e., land, furniture, intellectual property) can be. Officially dissolving a sole proprietorship requires several formal actions.

California law permits a sole proprietor to operate under a business name that does not include the owner’s legal name by filing a “Fictitious Business Name” (known as a DBA, meaning “doing business as”) with the county in which the business is located. To end a sole proprietorship that uses a DBA, the business owner must file a “Statement of Abandonment” with the county clerk of the county in which the fictitious business name statement was originally filed. The statement of abandonment must be published in the same manner that the fictitious business name statement was published. An affidavit showing that its publication is complete must be filed with the county clerk.⁶

Many sole proprietors use their Social Security Number as their IRS taxpayer identification number to report business income, while others obtain a separate employer identification number (EIN) for business purposes. If the sole proprietorship has an EIN, the owner should contact the IRS to cancel it.⁷ Additionally, the business owner must file all applicable state and federal tax forms, statements, and schedules with their return for the year in which they closed their business. Sole proprietors with one or more employees are likely registered with the California Employment Development Department (EDD) for state income tax withholdings and employment taxes and may need to deactivate their employer account upon closing the business.⁸ It is also important to cancel any business license that was issued by the city in which the business operates.

Professional Corporations
A corporation is a separate legal business entity owned by shareholders. The law that governs professional corporations in California is known as the “Moscone-Knox Professional Corporation Act.”⁹ In California, licensed marriage and family therapists who wish to incorporate their psychotherapy practice must form a professional corporation. Just as there are formal actions for forming and maintaining a corporation that must satisfy the California Secretary of State (i.e., drafting and filing Articles of Incorporation, drafting and maintaining corporate bylaws and shareholder agreements), there are formal actions required to end or dissolve a corporation. For more reading about MFT professional corporations, review “California Professional Corporations And the S Corporation” and “Marriage And Family Therapy Professional Corporations Common Questions Answered” by Ann Tran-Lien, CAMFT’s Managing Director Legal Affairs.

Officially ending a corporation’s existence as a business entity registered with the Secretary of State involves a formal dissolution process that is generally initiated by a vote or through the written consent of the corporation’s shareholders. Dissolution may require that a “Certificate of Election to Wind Up and Dissolve” be filed with the Secretary of State.¹⁰ There are additional requirements that may need to be satisfied, such as filing final state and federal income tax returns and all other applicable forms with the IRS and/or the California Franchise Tax Board, cancelling a trade name or fictitious business name under which the corporation does business, paying all known corporate debts, discharging all corporate liabilities, and filing a “Certificate of Dissolution” with the California Secretary of State.¹¹

Nonprofit Corporations
A nonprofit is an organization formed for religious, charitable, scientific, literary, or educational purposes that is eligible for federal and state tax exemptions. Licensed clinicians can form nonprofits. Creating a nonprofit requires formal actions such as preparing and filing nonprofit articles of incorporation, preparing bylaws, and obtaining federal and state tax exemption status. Generally, a nonprofit cannot be sold to another individual or organization and must divest all assets when it closes. When a nonprofit decides to cease operations, it must dissolve. Dissolving a nonprofit requires a resolution to wind up and dissolve; this can be enacted by the approval of a majority of the nonprofit’s members; by the action of the directors followed by a vote among the members, or with their consent; or by a vote among the directors.¹² Additionally, a “Certificate of Election to Wind Up and Dissolve” may need to be filed with both the Secretary of State and the attorney general. Nonprofits are required to pay off debts and distribute remaining assets to another nonprofit. Alternatively, the nonprofit can obtain a letter from the attorney general that either waives objections to the distribution of the nonprofit’s assets or confirms that the nonprofit has no assets. Finally, the nonprofit must file a “Certificate of Dissolution” with the Secretary of State, mail a final dissolution packet to the attorney general, and file all applicable state and federal tax forms and schedules.¹³

The dissolution process for a professional corporation or nonprofit can be relatively simple if done properly. If specific procedures are ignored, unintended and detrimental consequences may arise. Therefore, CAMFT recommends that you speak to a corporate lawyer, who will make sure you comply with all the dissolution procedures that apply to your business entity.

Selling a Psychotherapy Corporation Upon Retirement
A professional psychotherapy practice with a corporate designation can be sold. To determine whether selling your practice is a viable option, CAMFT recommends that you consult a financial advisor, a tax advisor, a corporate and/or healthcare attorney, and/or a business broker to ensure that you comply with the legal, ethical, and administrative obligations associated with selling a practice. The Moscone-Knox Professional Corporation Act governs who can invest in and own a professional corporation.¹⁴ In California, a professional corporation must be sold to a licensed individual and not to a private investor. Just as there are steps to wind down or dissolve a business, there is a detailed process for selling one.

Valuation of the Corporate Entity
First, the business must be valued. Most businesses are valued based on comparable sales for similar businesses in the same geographical area. However, assets both tangible and intangible can add to its value. For example, the “goodwill” a business carries—its positive reputation and status in the community—is an intangible asset used to value it.

Preliminary Letter of Intent Regarding the Sale and Purchase
The second phase of the process involves the buyer and seller entering into a letter of intent. A letter of intent is a nonbinding preliminary document that outlines the parties’ expectations after they’ve had significant discussions and decided on the basic terms of a potential sale but before they’ve drafted a final binding written agreement.

Due Diligence Period
The third phase, called “due diligence,” is when the prospective buyer investigates the business to confirm the accuracy of the information presented by the seller. During due diligence, either the buyer or the buyer’s attorney, accountant, or lender will request information and documentation that includes, but is not limited to, incorporation documents; earnings and cash flow statements; federal, state, and local tax returns; employment tax filings; organizational charts; information about day-to-day business processes; and the practice’s current advertising campaigns and physical marketing materials. The seller can also perform due diligence to verify that the buyer has sufficient funds to complete the transaction.

Final Sales Agreement
Finally, when the due diligence period is over, the parties are free to enter into a binding purchase agreement by signing all applicable contracts to complete the sale. Alternatively, either party can decide to back out of the transaction or renegotiate the terms of the sale.15

Conclusion
Making the decision to retire is a big step. The same amount of thought and preparation you expended to start your practice and your business should be given to winding up or selling your business. Give yourself time to plan. Especially with respect to closing or selling a business, there are many things to consider, such as preparing for tax consequences, avoiding liability, and finding qualified, competent professionals to assist in the process. Be prepared to think through these issues thoroughly to ensure that you properly care for not only your clients but also your own legal and financial concerns so that your retirement is not interrupted by unforeseen consequences.

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Alain Montgomery, JD, is a staff attorney at CAMFT. Alain is available to answer member calls regarding legal, ethical, and licensure issues.

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Endnotes

¹ Cal. Bus. and Prof. Code Section 4984.41(b)
² CAMFT Code of Ethics Sections 1.3 and 1.4
³ Black’s Law Dictionary 2nd Edition
⁴ Cal. Bus. and Prof. Code Section 4980.49
⁵ https://www.ftb.ca.gov/file/business/types/sole-proprietorship.html
⁶ Cal. Bus. and Prof. Code Section 17922
⁷ https://www.irs.gov/businesses/small-businesses-self-employed/canceling-an-ein-closing-your-account; https://businessportal.ca.gov/business-assistance/start-a-business/close-a-business/
⁸ https://www.irs.gov/newsroom/closing-a-sole-proprietorship
⁹ Cal. Corp. Code Sections 13400–13410
¹⁰ Cal. Corp. Code Section 1900; https://www.sos.ca.gov/business-programs/business-entities/faqs/
¹¹ Cal. Corp. Code Section 1903
¹² Cal. Corp. Code Section 6610
¹³ Cal. Corp. Code Sections 6611-6613
¹⁴ Cal. Corp. Code Section 13401 and Cal. Bus. and Prof. Code Section 4987.5
¹⁵ The Complete Guide to Selling a Business, 5th Edition, by Fred S. Steingold, Nolo Press

This article is not intended to serve as legal advice and is offered for educational purposes only. The information provided should not be used as a substitute for independent legal advice and it is not intended to address every situation that could potentially arise. Please be aware that laws, regulations and technical standards change over time. As a result, it is important to verify and update any reference or information that is provided in this article.