In headlines today are the severe allegations against KPMG in its role as independent auditor for New Century Financial which was a massive failure resulting in New Century's bankruptcy. Employees, shareholders and other interested parties are looking at the reports and possible evidence of wrongdoing to consider whom to sue. It's not a question of "if" lawsuits will be brought, but "when."

From the desk of Jeanne M. Kerkstra, Esq., CPA of Chuhak & Tecson, P.C.

Your work probably starts in the early morning hours and most likely does not end until the late evening. When are you expected to get to your personal issues? What if you don't?

On January 1, 2008, the new Illinois Employee Classification Act took effect. The Act is intended to address the practice of misclassifying employees as independent contractors.

A dollar-for-dollar discount for capital gains ("CG") tax liability was allowed by the Court of Appeals for the 11th Circuit in valuing a decedent's interest in a closely-held corporation, thereby reducing the gross estate by over $3,000,000. (Estate of Jelke v. Commissioner, 11th Cir., No. 05-15549 11/15/07) Added to this CG discount were discounts for lack of control and lack of marketability of the interest. The Court of Appeals agreed with the estate's assumption that all of the decedent's entity interest would be sold after his death, using the date of death as the valuation date.

Believe it or not, a good deal of your financial destiny is in your own hands. You don't get a lot of satisfaction financially or otherwise from griping at your accountant around April 15 when you are signing your tax returns and sending that payment to the IRS. Now is the time for action.

- Have you set up retirement plans maximizing the benefits for you?

- Are you taking advantage of medical reimbursement plans, where available?

- Do you want to make gifts to your children thereby providing them with a valuable lesson while at the same time remaining in control?

- Do you have the proper structure in place to reduce your exposure to creditor attack?

There are a myriad of steps that you could take to improve and protect your bottom line. Don't resign yourself to just complaining about your tax situation on April 15, 2008.

Act now! Give me a call and let's talk strategy.

If you wish to discuss these issues in more detail, please contact Jeanne M. Kerkstra at jkerkstra@chuhak.com or 312-855-4337.

Dear Readers:

I have had the pleasure of speaking at several societies over the past few years. Most recently, my colleague, Lindsey Paige Markus, and I had the opportunity to present to the Chicago Society of Plastic Surgeons on estate planning and asset protection. The response from our presentation has been tremendous. Our role as attorneys is to advise, counsel, and most importantly to educate our clients on the many tools available to make smarter business and legal decisions. This week's Viewpoint was inspired from inquiries made by attendees at our presentation and we wanted to make this information available to everyone.

Jeanne M. Kerkstra, Esq., CPA

Earlier this month a judge in California ordered an ex-husband to continue paying alimony to his ex-wife even though she was in a registered domestic partnership with another woman and using the other woman's last name. California matrimonial laws dictate that alimony ceases when a former spouse remarries. However, California currently bans same-sex marriages. Consequently, a person does not possess the same property rights under California's domestic partnership law as he or she would under California's matrimonial laws.

Paris Hilton's current dilemma screams to her parents "estate planning." Her parents certainly should be embarrassed that they are pleading to California Governor Arnold Schwarzenegger for a pardon of their daughter's 45-day sentence for failing to comply with the plea agreement in her drunk driving case. Apparently, part of the agreement was that within a certain time frame she was to sign up for certain education classes. She did not comply and, consequently, has until the beginning of June to start her jail time or that sentence will be doubled.

For Illinois residents, your estate plan is not complete if you do not have an Appointment of Agent to Control Disposition of Remains. Alternatively, if you have not heard of this form, your estate plan may be out of date.

Ring out the old, ring in the new. The more things change, the more things remain the same.

- The annual exclusion for gifts remains at $12,000. Note that for the calendar year 2007, the first $125,000 (up from $120,000) of gifts to a spouse who is not a citizen of the United States are excluded from taxable gifts.

It was reported last week that the wife of convicted former Congressman Randy "Duke" Cunningham entered into a closing agreement with the IRS (as did her husband, separately I believe). Her attorney stated that she had signed the joint return and so was jointly liable. However, often the spouse argues for relief as an innocent spouse, an injured spouse or cries duress. (See Section 6015 of the Internal Revenue Code).

Generally speaking, innocent spouse relief could be granted if the spouse establishes that he (or she) did not know, and had no reason to know, that there was an understatement and to hold otherwise would be inequitable. An injured spouse may prevail if a refund was received on a joint return and is, or is expected to be, used to pay one spouse's past-due child and/or spousal support, a past-due federal debt or past-due state income tax. Lastly, if the non-offending spouse could prove duress, the signature on the joint return does not count. It is not considered a joint return, and consequently the non-offending spouse is not subject to joint and several liability.

You would have to remember that there are limitations on the relief that a non-offending spouse may seek. In general, relief must be sought within 2 years of the commencement of collection activity, and these forms of relief cannot be sought if the non-offending spouse enters into a closing agreement or an Offer in Compromise with the IRS.

If you wish to discuss these issues in more detail, please contact Jeanne M. Kerkstra at jkerkstra@chuhak.com or 312-855-4337.

Last week actress Ellen Barkin symbolically and financially closed a chapter in her life. Christie's, the auction house, sold 106 pieces of jewelry, including her wedding ring, which she received from her ex-husband Ron Perelman, billionaire Revlon magnate, during their 6-year marriage. The haul fetched a whopping $20 million plus. The jewelry almost equaled her marriage settlement. Although she seemed to do well, her ex did better. When they got married, Ron was worth about $3 billion. He was worth double that 6 years later. But Ellen didn't get half of the $3 billion increase because she signed a prenup. (Contrast this with Paul McCartney's divorce ending a 4-year marriage in which there was no prenup. The press is reporting that his ex may walk away with about a quarter of a billion dollars).

As if there weren't enough headaches already associated with buying and selling a business, there is now another. Please be aware that besides complying with the Illinois Bulk Sales Act, you must also comply with Cook County's Ordinance. The devilish twist with Cook County's Ordinance is that both the buyer and seller are on the hook if a timely notice is not filed with the County. In other words, an untimely filed notice could result in joint and several liability for both the buyer and the seller.

The Bottom Line

Nowhere has the warning "Caveat Emptor" - "Buyer Beware" - been more applicable than in Cook County.

The text of this Ordinance can be found at the Cook County website.

If you wish to discuss these issues in more detail, please contact Jeanne M. Kerkstra at jkerkstra@chuhak.com or 312-855-4337.

You may find this morbid, but ask yourself, what will happen to your body after your death? Would you like to be buried? Cremated? Loaded into a cannon and fired into an open field, in the style of the late Hunter S. Thompson? Who will have the last word on this issue?

As of January 1, 2006, a new Illinois law allows you to sign an "Appointment of Agent to Control Disposition of Remains." This form describes your wishes as to the disposition of your remains, and allows you to appoint an agent to ensure that your instructions are carried out. To be effective, your signature on the document must be notarized.

Have a Property Agreement (call it whatever you like except a "Cohabitation Agreement"). If you are part of an unmarried couple, make it your mantra to "Have a Property Agreement".

A decedent's Individual Retirement Account ("IRA") is includable in his gross estate solely because he failed to make an irrevocable election as to the form of this retirement benefit. Sherill v. U.S., No. 2:04-CV-509 (N.D. IN 1/27/06).

Marshall v. Marshall: A case that is now before the U.S. Supreme Court. Probably even the man in the street can tell you a little about what is going on in this case. For the U.S. Supreme Court Justices, it is merely a matter of a jurisdictional issue. However, to the Plaintiff, Anna Nicole Smith (a/k/a Vickie Lynn Marshall), it could be worth a significant share of her deceased husbands (J. Howard Marshall) $1.6 billion estate.

As the story goes, the former topless dancer was in her mid-20's when she met her soon-to-be husband, who was approaching 90. He had been married a couple of times before, and even had a previous mistress who was also a topless dancer. The previous wives and topless dancer had predeceased him. After a short courtship, the two got hitched. About a year later, the husband passed away.

It has now been over 11 years, and the fight continues over the husbands estate. It is a battle between the widow and the widow's former stepson, 67-year old E. Pierce Marshall. Allegations abound. Was there undue influence by the wife to obtain an inheritance? Was there deception and destruction of legal documents by the stepson to prevent the wife from taking under the Will? A lot of money is at stake here.

Marshall v. Marshall shows that an estate plan is a dynamic creature; it is not cast in stone. Wills are drafted and are meant to be reviewed on a periodic basis, especially at life altering events such as the birth of children and marriage. Over time, it is necessary to review the choices made. Are the guardians who were chosen to care for minor children still the right choices? Are the executors still the reliable parties for said duties? Do you seek to disinherit children or spouses, and can you? These are questions that should be discussed with your attorney.

The Bottom Line

Estate planning documents, such as Wills, are not dusty old documents to be placed in desk drawers and forgotten. They are dynamic. They need to be reviewed on a consistent and periodic basis. Also, they need to be stored in a secure place, such as your attorney's office, away from prying eyes (and hands).

If you wish to discuss these issues in more detail, please contact Jeanne M. Kerkstra at jkerkstra@chuhak.com or 312-855-4337.

The annual gift tax exclusion has long been a favorite tool of tax and estate planners to assist their clients. Under present law, each donor can gift $11,000 per donee per year free of gift tax liability. Gifting offers various financial benefits to the client - reduced estate tax liability, reduced income tax liability, and increased asset protection. Gifting can also enable the client to achieve other family or business succession objectives.

By law, the annual gift tax exclusion is indexed for inflation. On October 28, in Revenue Procedure 2005-70, the Internal Revenue Service announced that beginning in taxable year 2006, the annual gift tax exclusion will be increased from $11,000 to $12,000. Thus, while for the remainder of taxable year 2005, the annual gift tax exclusion is at $11,000, beginning in taxable year 2006, the annual gift tax exclusion will be increased to $12,000. For a husband and wife, with 3 children, the effect of this increase in the annual gift exclusion would be to enable this family to derive $6,000 of additional financial and other benefits from gifting based on the annual gift tax exclusion in taxable year 2006.

The Bottom Line:

Persons already engaged in annual gifting programs will welcome the opportunity to accelerate their gifting with this increase in the annual gift tax exclusion.

Persons who are concerned with estate tax liability issues, income tax liability issues, or asset protection issues, or who wish to transfer assets or property to achieve other family or business succession objectives, should consult with their tax and financial advisors to take advantage of the increased benefits from this increase in the annual gift tax exclusion.

If you wish to discuss these issues in more detail, please contact Gary J. Stern at GSTERN@CHUHAK.COM or 312-855-4604.

You have signed off on your Will, revocable trust, Powers of Attorney, and perhaps an irrevocable trust. You feel a sense of accomplishment now that your estate plan is done. Years later, your loved ones receive the fruits of your labor as the beneficiaries of your planning. Unfortunately, you left them with a burden in the form of $8,000 in unnecessary costs to probate your estate.

Estate planning which involves trust documents is not complete until the trusts are funded. If this step is overlooked, the trust you signed is a meaningless stack of paper. The number one reason for executing a living trust (a/k/a a revocable trust) is to avoid the probate process, and you will not have met this goal if you do not have your assets transferred into the name of your living trust.

The average cost to probate an estate begins at $1,500, according to statistics published by the American Association of Retired Persons. If your Will is contested, this cost increases significantly. In Illinois, assets in excess of $100,000 which do not automatically pass per beneficiary designation require probate. Just the filing fees to probate an estate in Cook County are conservatively $500. Why even leave this amount for your heirs to pay, when properly completing your estate planning would avoid this cost? Working with your brokers and attorneys to transfer your assets into your living trust is time well spent, and leaves the money your living trust beneficiaries will not have to spend on probate in their grateful hands.

The Bottom Line

Funding your living trust is a crucial step in your estate planning. The trust documents supporting your estate plan which have been drafted and executed should not be considered complete until such trusts have been funded.

If you wish to discuss these issues in more detail, please contact Jill McNamara at jmcnamara@chuhak.com or 312-855-6408.