Wednesday, June 17, 2009

How Much Diligence Should We Do?

We all acquire new clients. A new client often comes with a specific task or request. How far do we go to collect sufficient information from them and to inform them of things that they need to do?
A client was referred by their lender, for an estate plan. The family business had been transferred down several generations. The client’s father had died years back and the business was operated as an equal partnership between mother and son.

In addition to the work I did for the client, his mom asked me to do some work on her existing plan. Looking at historical documents, it turns out that there was never a transfer from the original partnership shares to the son creating the 50/50 partnership.

In the process of review of farmland for another new client, we discovered a large parcel which had been purchased on a land contract. The land contract had been paid off long ago, but the client had never gotten a deed from the original seller and the seller was now deceased. A Probate Estate became necessary to clear up the title issues.

Another client told me all about his business entity. Checking with the Michigan Department of Labor and Economic Growth’s (DLEG) website, I discovered that his business had been automatically dissolved for failure to file Annual Reports and pay fees.

My answer to the question posed is that there can never be enough due diligence! I have learned during my 25 years of practice, to ask many questions, to insist on evidence of ownership, review transactions, and conduct independent checking (looking on the DLEG site, checking with the County Clerk and sometimes with the County Register of Deeds and/or Tax Records). Client copies of deeds and tax bills may or may not be complete and accurate information. Particularly with real estate transactions, I increasingly advise clients to obtain title searches and even property surveys.

We can never ask too many questions, or gather too much information about our new clients. The point of our representation, no matter what professional discipline we are in, is to help our clients to achieve sound business and personal goals. In that endeavor, information is king, and we often find our advice branching past the original scope of our representation and sometimes referring them to other advisors.
Learning to ask the next question, or look around the next corner is an art of diligence.


About Issues For Advisors

About 3 years ago, I started publishing a Quarterly E-Newsletter targeted directly at professional colleagues and valued referral sources. The intent of the newsletter was to be a resource for professional advisors, including Accountants, Insurance Professionals, Financial Planners, Brokers, Bankers and Planned Giving professionals. The "Issues For Advisors," newsletters have 2 primary goals: (1) To provide timely, useful information about issues that are either of current significance, have caused a recent problem, or are of a recurring nature to our mutual clients, and (2) To keep the content brief (no more than a single page). It recently occurred to me that there is no "archive" where advisors can go to retrieve, or re-read prior Issues. Rather than "burying" them somewhere in the Smith Bovill website, I created an on-line Resource specifically dedicated to the Professional Advisors enumerated above. In addition to the "Issues For Advisors" Archive, Links to other resources (including, of course, the MICHIGAN ESTATE PLANNING BLOG and THE SMITH BOVILL LAW FIRM SITE), will be featured here.

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