Law Firms Cutting Estate Practices
By AMANDA BRONSTAD
Staff Reporter
Pursuing more lucrative lines of work, large L.A. law firms are de-emphasizing estate practices that typically bill at lower rates and are more partner-intensive.
The latest move involves Gibson Dunn & Crutcher LLP, third largest firm in the city, which has notified clients that it is phasing out its personal tax and estate planning practice.
“It has been the trend of all the major firms in recent years,” said Burton Mitchell, chairman of the tax and estate planning department of Jeffer Mangels Butler & Marmaro LLP. “They can’t make that practice work from a financial point of view.”
At Latham & Watkins LLP, which has about 1,500 lawyers, only two partners make up the personal legal services group of the tax department. The mergers and acquisitions group in the corporate department has 52 partners, 51 associates and five “of counsel” attorneys worldwide.
Officials at Latham and O’Melveny & Myers LLP, L.A.’s two largest firms, denied downplaying the importance of their trust and estates practices, although they conceded that maximizing profits is not feasible in this area of law.
That’s because it takes more partners to staff a typical trust and estates department, and adding more of them dilutes a firm’s profits-per-partner. In mergers and acquisition practices, by contrast, a single partner can oversee several associates, boosting production and maximizing profits-per-partner.
Bringing in associates who bill $200 to $300 an hour sometimes doesn’t make sense on an estate plan that typically costs a few thousand dollars.
“A practice where there’s one partner per associate hurts your profits per partner,” Mitchell said. “You need more associates. Law firms getting rid of an estate planning practice increase their profits per partner.”
Even wealthier clients don’t bring in large amounts of billable hours unless they end up in a lengthy court battle, said Michael Waldorf, president of legal placement firm Waldorf Associates.
Profits are an increasingly important benchmark in firms’ competition for clients. Keeping profits high also helps firms retain the best attorneys.
Gibson’s profits are the highest among L.A.’s firms. Last year the firm saw a 7.2 percent jump in profits per partner, to $1.18 million, according the firm’s year-end totals. Two years earlier, Gibson’s profits were $975,000 per partner.
The cuts at the big firms have proven a boon to boutique and mid-sized firms.
Mitchell said Jeffer Mangels’ practice, which he called one of the largest in the state, allows the firm to generate additional work, particularly for wealthy clients. And despite its profit challenges, the practice has other rewards.
“You’re dealing with people,” he said. “You’re dealing with their lives and their spouses and their children, not the general counsel of some ephemeral entity.”
Gibson spokesman Paul Ward said the firm was mindful of those relationships and had sent the letters to help clients through the transition process. He stopped short of saying that profits played a part in the decision to remove the practice. Instead, he said Gibson’s executive committee decided a few months ago that the practice “isn’t a strategic fit.”
“We looked at the area’s growth, and what makes more sense for resources and client demand, and that’s not one of the areas that fits our plan,” Ward said.
The move by Gibson comes on the heels of the retirement of senior partner Ronald Gother, estate planner to the Walt Disney family, on Jan. 1.
In his 41 years at Gibson, Gother said the firm gained a reputation for having one of the strongest estate-planning practices in the state. But in the past 10 years, firm leaders periodically considered eliminating the practice to boost profits, he said.
The retirement of Gother, whose clients also included the late bandleader Lawrence Welk, marked the loss of a major rainmaker at the firm. Gother negotiated the $50 million donation made by Lillian Disney, the widow of Walt Disney, to build the Disney Concert Hall.
The remaining partners have not announced plans to leave or shift to another department at Gibson, Ward said.
Timothy Kay, chairman of the practice group in the Irvine office, referred calls to William Stinehart, the senior partner in the group and a member of Gibson’s executive committee. Stinehart declined to comment.
