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.

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.

In Cromer-Tyler v. Teitel, et al,. 1 a physician/plan administrator found that not playing by the rules when it comes to administering his company's retirement plan can have painful financial repercussions.

As an attorney, I thought that at first blush there are a lot of similarities between the idea behind a non-compete for physicians as in Mohanty1 and Dowd.2 However, it is not as straightforward as it may initially appear.

On June 30, 2006 the IRS issued Rev. Rul. 2006-38 determining the amount involved, for purposes of calculating the prohibited transaction excise tax under IRC § 4975, if an employer does not timely pay elective deferrals to a qualified plan.

The Law

Section 4975 (a) and (b) impose a 15% (first tier) and a 100% (second tier) excise tax respectively on a prohibited transaction.

Section 4975(f)(4) defines the term "amount involved," generally, as the greater of (1) the amount of money and the fair market value of the other property given or (2) the amount of money and the fair market value of the other property received in such transaction.

For purposes of the first tier excise tax, the fair market value is determined as of the date on which the prohibited transaction occurs, whereas, for purposes of the second tier excise tax, the fair market value is the highest fair market value during the "taxable period".

Section 4975(f)(2) defines the term "taxable period" as the period beginning with the date on which the prohibited transaction occurs and ending on the earliest of:

1. the date of the mailing of a statutory notice of deficiency,

2. the date on which the first tier excise tax is assessed, or

3. the date on which correction of the prohibited transaction is completed.

Section 141.4975-13 of the Temporary Pension Excise Tax Regulations provides that, under paragraphs (4) and (5) of § 4975(f), § 53.4941(e)-1 of the Foundation Excise Tax Regulations is controlling to the extent those regulations describe terms appearing both in § 4941(e) and § 4975(f). The term "amount involved" appears in both § 4941(e) and § 4975(f).

The IRS recently published guidance for implementing Roth features to your 401(k) plans. For those of you just tuning in, a Roth feature gives you the option to contribute after tax dollars with the prospect of not being taxed when you take the funds out. Up to now the Roth brand of retirement savings has only been available as an IRA, and then with income restrictions on availability.

Every five or six years your pension or profit sharing plans have to be completely redone. Why? The government says so. But that's not all bad. Every year Congress passes some piece of legislation that affects all qualified plans. Previously, we would have had to draft an amendment rigorously keeping your plan in compliance. And every year we would have sent you a bill that you weren't happy about. "Why are you billing for something that doesn't really affect us?" Maybe we would have to do this several times a year.

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).

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.