One day, I received a telephone call from the son of a deceased client. I had worked with the family from 1998 to 2000 to write an estate plan for the mother.
The son called to inquire if I could do a valuation on the family business’ stock. Since I knew that some of the stock was held in the family trust and that there were provisions to buy out non-farm heirs the request didn’t seem unusual.
However, I was shocked to learn that the son’s inquiry was to value the stock for a tax settlement. I soon uncovered a real mess.
The estate adviser had concealed from the family that the Internal Revenue Service had proposed a $750,000 payment to settle the estate. I quickly contacted a prominent agricultural estate attorney to assist the family. The end result was that the family received a $25,000 tax refund instead of owing an additional $750,000 to the IRS.
So what happened here?
In a nutshell, the family adviser was not qualified to file an estate-tax return.
This example shows that even a trusted adviser can become involved in a situation beyond his/her capabilities. Advisers should know their limitations.
However, some do not like to bring other advisers into the mix for fear of losing a client. So, in an attempt to retain a client, they wander off into areas where they don’t have adequate expertise, exposing the client to a loss and their firm to a malpractice suit.
That’s why it’s wise to carefully evaluate the capabilities of all your advisers. If an issue or topic seems beyond an adviser’s ability, do not hesitate to seek advice from another individual or firm.
When you find yourself in need of additional expertise, use these tips to select an adviser suited for the task at hand:
1. Word of mouth is often still the best reference. If you know someone who has experienced the same problem as you are facing, find out who helped solve it.
2. Ask your other advisers (accountant, attorney, lender, financial adviser) who they have worked with and who they would recommend to help solve a specific problem.
3. Never delegate total responsibility to solve any problem without being able to monitor progress. Make sure that you see all documents, even if you grant an adviser power of attorney on your behalf.
In the previous example, if IRS representatives had not notified the son who served as executor of the estate about the problem, the family could have suffered serious consequences. Sure, they could have sued the adviser for malpractice, but if he or she didn’t have adequate malpractice insurance, the family would still suffer a major financial loss.
4. Always discuss concerns with your adviser. He may be able to perform 90 percent of the functions that your business requires. However, in the event that you need a specialist, make sure your adviser knows that you expect him to bring in outside expertise.
5. When interviewing a potential adviser, always ask for some client names as references. If an adviser has several successful agricultural clients, there’s a greater chance that she’s equipped to handle your problems.
Remember that an adviser is a tool -— similar to a planter or a loading chute — to be used to solve specific problems or to address specific needs. Use these tools wisely and monitor your advisers’ performance to make sure that your business
interests are protected.
By Darrell Dunteman, an agricultural financial consultant and accountant in Bushnell, Ill. He also edits the Farm and Ranch Tax Letter, a monthly agricultural tax publication.