Last summer, 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 children’s mother. The son called to inquire if I could do a valuation on the stock of the family business. 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 inquiry was to value the stock for the mother’s estate for a tax settlement. I soon uncovered a real mess. The adviser for the estate 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? 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 capabilities. Most good advisers know their limitations. However, some do not like to bring other advisers in for fear that they may lose a client. So, in an attempt to retain a client, they wander off into an area where they don’t have adequate expertise, exposing the client to a loss and their firm to a malpractice suit.
You need to carefully evaluate the capabilities of all of the advisers you work with. If something seems beyond an adviser’s ability, do not hesitate to seek the advice of another firm.
And, when you find yourself in need of additional expertise, use these tips to select an adviser suited to handle the task at hand:
1. Word of mouth is often the best form of reference. If you know someone who has experienced the same problem, ask who helped solve it.
2. Ask your other advisers (accountant, attorney, lender, financial adviser) who they have worked with and would recommend to help solve this particular problem.
3. Never delegate total responsibility to solve a 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 above example, if the Internal Revenue Service had not notified the son who was the executor of the estate of the problem, the family could have suffered serious consequences. Sure, you could sue the adviser for malpractice, but if he did not have adequate malpractice insurance, the family could still suffer a major financial loss.
4. Always discuss any concerns with your adviser. The adviser may be able to perform 90 percent of the functions that your business requires, but in the event 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 the names of clients as references. If an adviser has a number of successful agricultural clients, there is a greater chance that he’s equipped to handle your problems.
Remember that an adviser is just a tool — similar to your planter or combine — to be used to solve specific problems or to address specific issues. Use these tools wisely and monitor the performance of your advisers to make sure that your business interests are protected.
Darrell L. Dunteman is an agricultural financial consultant and accountant with offices in Bushnell, Ill. He also edits the Farm and Ranch Tax Letter, a monthly agricultural tax publication.