Greetings from Custer State Park … one of our favorite places to visit in the RV. It is also Sturgis week, when the population of South Dakota doubles with the influx of (mostly Harley Davidson) motorcycle riders.
Creating content is an incredible marketing tool to build Authority for practitioners of all stripes and firms of all sizes – if it’s done the right way. I hope you found our last conversation outlining tips to spruce up your content to be useful.
On to this week. I have written and reviewed a few engagement letters in my years of practice. I have found that there is one section that would be beneficial in many engagement letters and another section that belongs in all engagement letters. Both are easy to add.
And if you’re new here, welcome aboard. This is what we do!
If you started your practice today, knowing what you know today …
What is the #1 thing you would do to get better results?
Why not start that now?
Like many things I write about, I imagine what would be best for the client, not what might be easiest for me. (Though I will confess in my early years of practice, I did focus more on the latter … shame on me.)
So in looking at your ways of doing things, always put yourself in the client’s shoes. And when that comes to engagement letters, what two things might they be most concerned about?
#1 – Are you doing the right thing?
Many times, information about a project comes to us over a hurried phone conversation with an attorney. And in particularly complex valuations, what we think we’re being engaged to do might not be what the client meant for us to do. Ever have that happen to you? (Yeah, me neither.)
This can be remedied by adding a section in the engagement letter that I call “My Understanding of the Engagement” (or “My Understanding of the Transaction”).
It’s not necessary for all engagement letters. Sometimes saying we are “estimating the fair market value of a 1/3 member interest in XYZ Industries, LLC as of July 1, 2019, the date of death of the decedent, on a minority, marketable basis for federal estate tax compliance purposes” is sufficient.
Sometimes it’s not. Here is an example from an engagement letter that I wrote for a valuation project last year.
IV. My Understanding of the Engagement/Valuation Dates
1. On March 1, 2017, three sub-trusts were created by John Doe, Trustee of the John Doe Trust (now, the Irrevocable Trust for the Benefit of the John Doe Family).
a. On March 1, 2017, the assets of this trust consisted of one real estate limited liability company holding two commercial properties: ABC, LLC.
b. On January 1, 2018, the assets of this trust consisted of one additional real estate limited liability company holding one commercial property: DEF, LLC.
2. On July 1, 2017, three sub-trusts were created by Jan Doe, Trustee of the Jane Doe Living Trust (now, the Jane Doe Irrevocable Trust).
a. On July 1, 2017, the assets of this trust consisted of five real estate limited liability companies, each holding one commercial property: GHI, LLC; JKL, LLC; MNO, LLC; PQR, LLC; and STU, LLC.
3. As of the noted dates (the valuation dates), the beneficiary of each sub-trust is entitled to:
a. During the lifetime of Jane Doe, a 30% profits interest.
b. Upon the death of Jane Doe, a one-third interest in each of the seven real estate limited liability companies.
4. The sub-trusts were created for the benefit of the three children of John and Jane Doe: Tom Doe, Dick Doe, and Harry Doe.
5. Subsequent amendments to the John Doe Trust and the Jane Doe Living Trust made each trust an irrevocable trust and resulted in taxable gifts to the children.
6. Under current tax law, creation of the sub-trusts will permit valuation discounts for lack of control and lack of marketability to be applied to the Subject Interests.
7. My responsibility is to prepare a business valuation of a 1/3 member interest in:
a. ABC, LLC as of March 1, 2017;
b. GHI, LLC; JKL, LLC; MNO, LLC; PQR, LLC; and STU, LLC as of July 1, 2017;
c. DEF, LLC as of January 1, 2018.
8. My valuations will be used only for federal gift tax compliance purposes.
Pretty intricate, right? No way I was going to get started on this project without a confirmation of the details by the client and the attorney.
#2 – Will you keep me updated?
When clients plunk down large retainers, I am pretty sure they expect to be updated on a regular basis. I know I would if I were the client. Yet many clients go for long periods of time without hearing from us. And it’s why I wrote Why you should call your BVFLS clients every Friday … or some other day that makes sense for you.
Here is the excerpt of my engagement letter for this action.
IX. Ongoing Client Communication
From the time of my engagement through the delivery of the draft report, I will make every effort to telephone or email [client] each Friday and advise you of the progress made since the previous contact and of the work expected to be performed in the coming week.
Pretty simple, right? This is really a common courtesy that belongs in every engagement letter. And it will force you to regularly communicate with clients, which can keep projects from going off the rails.
These two sections are “do unto others” things. Further, they take little effort on our part to add to an engagement letter template and they can ease two client concerns about the work we are doing for them.
In real life
Think about two competing proposals for an engagement. One has these two sections and the other does not. If you were the client, and all other things were equal, which proposal would you accept?
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