Commercial Litigation

May 16th, 2012 by Paul No comments »
 Commercial Litigation   
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 
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Managing commercial relationships is key to the success of your business.  Relationships require effort to maintain.  In the long term they need to be mutually beneficial.  When open and honest communications break down, or when benefits promised or bargained for have not been obtained, you may consider legal action as an alternative.

Commercial litigation is more complex than civil litigation and there is a  balancing of risks, distractions and costs of litigation you must make against the potential of an expected recovery.  Commercial litigants are usually more dispassionate than those involved in personal torts or domestic litigation and are more likely to settle since business litigants are accustomed to doing business, and the resolution of disputes is generally “good business.”

In an earlier post we provided a “framework” for structuring commercial agreements to avoid litigation.  To quickly review, our “framework” included the mnemonic “If you’re getting in Bed, Keep Score.”  This is a good tool to help recall what should be considered prior to litigation: 1) Business control, risks, and term of the relationship, 2) the Economics, 3) the Deal structure – both tax and book, 4) Procedures, 5) Security, 6) Conditions to the agreement and to enforcement,                   7) Obligations, 8 ) Rights, Risk allocation, and Remedies, and 9) Enforcement mechanics.

In this month’s letter we discuss the process involved when agreements turn into “disagreements.”    “Business is like a Marriage, without Love” and your best defense is always a well drafted agreement.  We hope this month’s report provides useful insights.  As always, the goal of our monthly letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

Commercial Litigation 

Your contract is the starting point.  It will govern the course and conduct of any future litigation.  Generally courts enforce your  agreements in accordance with the rules and procedures you have specified in your agreement.  Trial preparation actually begins when you draft your contract and not when a judgement is entered on the verdict!  Business relations and the decisions you make along the way will have a profound impact on your ability to enforce your agreement or position your case for settlement.To decide when litigation is appropriate (and cost effective) let’s re-review some basic requirements and procedures.

  1. Offer, Acceptance, Consideration  Contract formation requires mutual asset to the same terms supported by valid consideration.  The law favors an objective standard for determining a party’s intent to be contractually bound.  Thus, general communications are given the meaning that the recipient of the communication would have reasonably understood.  The nature of the contract dictates whether an offer can be accepted by a return promise or by performance.  Consideration requires a bargained exchange in which each party incurs a legal detriment  (engages in an act that the party was not previously obligated to perform, or refrains from exercising a legal right).
  2. Promissory Estoppel and Parol Evidence  When a party foreseeably relies to his detriment on the promisor’s promise, even in the absence of an enforceable contract, the doctrine of promissory estoppel may be invoked to make such promise binding in order to prevent injustice.  The remedy in such cases is based on the extent of the promisee’s reliance, not his expectation.  The parol evidence rule governs whether parties may introduce evidence of extrinsic agreements to prove the existence of additional or modified terms.
  3. The Theory of Your Case  One of the reasons counsel is often retained is to determine the likely outcome of a potential litigated dispute.  A business owner typically seeks advice on potential causes of action that arise from the facts they feel the legal system can address.  Facts can dictate action (whether injunctive or other emergency relief).  The theme or “theory of your case” communicates how the case should be viewed by the jury from the outset of the trial presentation.
  4. The Budget  Everyone wants to know what their costs will be.  A litigation budget is essential for assessing the settlement value of the case.  Budget estimates are subject to possible alternate scenarios and participants must understand that their own actions, or the actions of the adverse party, or the court, will have impacts on litigation costs which are not directly under your attorney’s control.
  5. Pleadings and Motion Practice  A well prepared complaint has enormous advantages in the impression given the judge upon first reading and in the framing of issues for discovery and motions.  Pre-Trial motion practice covers a wide range of topics meant to prepare the case for Trial and covers both issues of law and discovery mechanics.
  6. Discovery  Litigators know what the law requires and will tailor discovery to meet required elements of proof.  The purposes of litigation are best served when each party knows as much about the controversy as is practical.  Expect opposing counsel will want to see every tangible, relevant document in the opponent’s possession. The fundamental purpose of a lawsuit is to determine the truth of the matter and so the scope of discovery is broad and includes all matters that are admissible in evidence or that could lead to admissible evidence.
  7. Settlement?  Many disputes that result in litigation are resolved without trial.  Many time parties will explore settlement before filing.  In those cases in which suit has been filed settlement can be broached at any time during a pending dispute.  Maximum factual information must be available to determine the relevant issues and damages sustained.  Entering into settlement negotiations prior to obtaining the necessary factual information can result in  substantial risk of not obtaining an adequate settlement.
  8. Trial   Trials, like trial judges, can be unpredictable.  Trial strategy is formed once the law has been determined and evidence on the various issues which need to be proved/disproved has been mapped out.    Backup plans are necessary.  Knowing your case and your evidence in the event something happens that could adversely affect your desired outcome is important.  Focus on the issues at hand, connect with the jury and make a record to preserve issues for appeal..  Remember that trials involve real people who have made real decisions and are meant to promote the resolution of disputes in a civilized manner.

Commercial cases often involve issues that go beyond the facts of the case.  While all commercial cases share common characteristics, the most common is that each case is different from all others.  Attorneys are advocates and as you consider litigation your should be aware of the uncertainties and possible alternate scenarios that litigation may produce.  The bottom line is knowing what you want to achieve, what you will need to win, and,  knowing when to or settle or move forward to trial.

Strategic reasoning is required to anticipate the possible directions a lawsuit may take.  Some say the future cannot be predicted.  Others say the only way to predict the future is to create it!

 

About Our Law Firm

We provide peace of mind by creating and managing structures that allow you to grow and protect your business, legacy, and personal wealth.  “Where you’ll be tomorrow, depends on what you do today.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and tax  advisory services.  We add value to your business investment strategies by providing a  combination of  financial, audit, and tax expertise.  Combined with legal services which are provided separately by the Lechner Law Office, P.C. we offer the small to mid-sized privately held business owner an attractive package of comprehensive services.  Recent assignments include acquisition diligence reviews and transaction structuring.Find out more by calling Paul Lechner at 708.460.6686.
In This Issue
Commercial Litigation
Update on Elder Law Issues
Attorney Spotlight
Paul Picture

Paul instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy.  He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago and in the College of Business at Governors State University.

The Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Asset protection and estate planning for their families and  personal assets.

Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 

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Internal Control? It’s Not a Matter of Trust

April 10th, 2012 by Paul No comments »
 Internal Control?
It’s Not a Matter of Trust  
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 

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Paul Lechner, Esq. CPA

Do you sometimes have a desire to “manage” your numbers to achieve financial targets, keep your stock options “in the money” and be rewarded with a year end cash bonus?  Management often does.  The stock and bond markets are critical components of our economy.  The efficiency, liquidity, and resiliency of these markets depend on the ability of investors, lenders, and regulators to assess the financial performance of businesses.  And, financial statements play a key role in keeping our capital markets efficient.

In the first decade of this century numerous revelations of financial statement fraud created a crisis of confidence in the capital markets and led to a $15 trillion dollar decline in the market value of all public company stock.  Such frauds included intentionally misstated financial statements, inappropriate executive loans and corporate looting, insider trading, IPO favoritism, excessive retirement perks, exorbitant compensation, quid pro quo transactions, excessive debt and follow on bankruptcies.  Financial Statement Fraud, like other frauds, involves intentional deceit and attempted concealment.  Such fraud may be concealed through falsified documentation, including forgery or collusion among management, employees, or third parties.  Many times, even when fraud is suspected, it can be difficult to prove.

This month’s letter is an attempt describe why these problems occur, understand management motivations, and provide basic tools to help you develop a framework for detecting financial statement fraud.  We hope this month’s report provides useful insights.  As always, the goal of our monthly letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

An Framework to Consider

Most financial statements are prepared with integrity and present a fair representation of the financial position of the company issuing them in accordance with generally accepted accounting principles (“GAAP”). Unfortunately, financial statements are sometimes prepared in ways that intentionally misstate the financial position and performance of an organization.  Such intentional misstatements can result from manipulating, falsifying, or altering accounting records.  Misleading financial statements cause serious problems and often result in large losses for investors and, more importantly, a lack of trust in the market and litigation and embarrassment for individuals and organizations associated with financial statement fraud.How do you structure an approach to evaluating the risk of fraud other than remaining skeptical?  Being sensitive to potential exposure areas is one of the first steps.  To do so you must  understand the operations and nature of the business, the nature of the industry, the competition, the people involved, their backgrounds, their relationships with outsiders, and, have a good understanding of the operational and competitive pressures faced on a daily basis.  This is NOT what a public accountant performing the year financial audit in accordance with generally accepted auditing standards is focused on.  The question is, “What motivates management to behave the way it does?”

Here are two acronyms to use as memory tools to help your analysis.  The first, “F.I.R.M.”, an acronym for four key exposure areas to organize an exposure analysis (Financials, Industry, Relationships with others, and Management background analysis); and the second “MOR”, an acronym that will help you remember to analyze management Motivations, Opportunity and Rationalizations.

  1. Financials  Financial statement fraud often starts with high expectations that cannot be met without some form of earnings manipulation.  As a result, financial results and operating characteristics often exhibit symptoms of possible manipulation.  Use of financial ratios, common size statement analysis, and trend analysis can help understand the nature of the business, and uncover the symptoms of fraud that might be be occurring.  One of the best ways is to analyze organizational activities and cycles and identify where frauds could be perpetrated.  By analyzing accounts involved in each type of  transaction areas of potential internal control breakdowns can be identified and assessed for potential manipulation.  A sudden dramatic increase in the size or direction of change in financial statement balances, amounts, or ratios is often a signal that something is wrong.
  2. Industry  Benchmarking or comparing operating results with other organizations in the same business is a basic analytical tool.  Is the business in a declining industry with increasing business failures and significant declines in customer demand?  Some industries are more risky than others.  Assessing fraud exposure through financial statements and operating characteristics involves comparing statement balances and amounts with those of similar organizations in the same industry.  Perhaps something as simple as comparing financial results with real-world non-financial referents can expose anomalies that require further explanation.
  3. Relationships  Top management always has the ability to override internal controls.  Collusion with outsiders or with related parties is one of the easiest ways to perpetrate financial statement fraud.  Financial statement fraud is often perpetrated with the help of other real or fictitious organizations.  Although relationships with all parties should be examined to determine if they present fraud opportunities, relationships with related organizations and individuals, external auditors, lawyers, investors, and regulators should always be considered.
  4. Management  Gaining an understanding of management and what motivates each individual is as important as understanding the financial statements.  Is management compensation primarily performance based (bonuses, stock options, etc.?).  Three aspects of management should be reviewed; backgrounds, motivations, and the amount of control any single individual may have in making decisions for the organization. Review the kinds of organizations and activities management and directors have been associated with in the past.  It doesn’t cost very much to hire a private investigator to get a clear picture of management’s past activities.
  5. Motivation  Is management’s personal wealth tied up in the organization?  Are they under pressure to deliver unrealistic results.  Is compensation primarily performance based?  Are management jobs at risk?  Many financial statement frauds have been perpetrated because management needed to report positive or high income to support stock prices, or to support a public offering, or to meet regulatory or loan covenants.
  6. Opportunity  Fraud perpetrators must have a perceived opportunity or they will not commit fraud.  If they believe they might  be caught and punished they are less likely to commit fraud than if they believe they have an opportunity to successfully avoid detection.  Opportunities such as a weak board of directors, a lack of internal controls, an ability to obfuscate frauds behind complex transactions or related third party structures often result enough opportunity to allow a fraud to go forward.
  7. Rationalizations   Every perpetrator must have a way to rationalize their actions as acceptable.   For corporate executives such rationalizations include the need protect shareholder investment by keeping stock prices high, or “all companies use aggressive accounting practices.”  In many instances, it is simply the thought that the problem is temporary and can be offset by future results.
  8. Can it Happen Here?  Management fraud often starts as simply an attempt to “window dress” the numbers.  There is a “slippery slope” that follows.  Misplaced incentives often lead to a continuing pattern of managing the numbers in order to manage the stock price.

Recognize that financial statement fraud is carefully crafted to conceal its existence from auditors and others.  Such frauds often go on for several years before being detected   Some of the most common methods include fictitious revenue recognition, inventory manipulation, overstatement of assets, and understatement of expenses and liabilities.  Because financial statement fraud is seldom directly observed examiners look for “red” flags or symptoms that fraud may be occurring.  Non-financial performance measures are  valuable in detecting unusual financial results.  Management may be able to manipulate the financials but may find it more difficult to keep all the non financial information consistent with the financial information.  Moving beyond this basic approach requires you to remain skeptical and utilize strategic reasoning.

Strategic reasoning refers to an ability to anticipate methods of concealing financial statement fraud.  Why types of fraud schemes is management likely to use to commit financial statement fraud?  How can management conceal the scheme from typical audit tests?  How can the typical test be modified so as to detect the concealed scheme?  Fraudulent financial statements are rarely detected by analyzing the financial statements alone.  Analyzing the four basic fraud exposure areas covered in this month’s letter and understanding management motivations, opportunities, and rationalizations are the first steps in identifying the possibility of fraudulent statements.

Some say the future cannot be predicted.  Others say the only way to predict the future is to create it!

 

About Our Law Firm

We provide peace of mind by creating and managing structures that allow you to grow and protect your business, legacy, and personal wealth.  “Where you’ll be tomorrow, depends on what you do today.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and tax  advisory services.  We add value to your business investment strategies by providing a  combination of  financial, audit, and tax expertise.  Combined with legal services which are provided separately by the Lechner Law Office, P.C. we offer the small to mid-sized privately held business owner an attractive package of comprehensive services.  Recent assignments include acquisition diligence reviews and transaction structuring.Find out more by calling Paul Lechner at 708.460.6686.

In This Issue
Internal Control, It’s Not a Matter of Trust
Next Month: Contract Litigation
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy.  He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago.The Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Asset protection and estate planning for their families and  personal assets.

Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 

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Why Buy? A Lease Accounting Update

March 8th, 2012 by Paul No comments »
 Why Buy?
A Lease Accounting Status Report 
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 

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Paul Lechner, Esq. CPA

Leasing has grown tremendously in popularity.  Today it is the fastest growing form of capital investment.  Why? Here’s an example.  Krispy Kreme, a chain of doughnut shops, had been showing good growth and profitability using a relatively small bit of capital.  That’s an impressive feat if you care about return on capital.  But there’s a hole in this doughnut!  The company explained it was building a $30 Million new mixing plant and warehouse in Effingham, Illinois but its financial statements did not disclose the investment or obligation associated with that $30 Million.

How did Krispy Kreme manage that?  By financing through a “synthetic” lease, Krispy Kreme kept the investment and obligation off its books.  In a synthetic lease a financial institution structures a loan using lease documents in a manner that meets current U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) accounting requirements for non-capitalization (or off balance sheet treatment) for financial reporting purposes while the lessee retains tax benefits and ownership.  While future obligations are disclosed in footnotes to the financial statements no asset or corresponding liability shows on the firm’s balance sheet.

The leasing industry is a significant and growing business which contributes to economic growth by providing lower cost capital, flexibility and 100% financing.  Yet current lease U.S. GAAP accounting and reporting has been identified by Securities Exchange Commission (“SEC”), the International Accounting Standards Board (“IASB”), and the U.S. Financial Accounting Standards Board (“FASB”) as requiring standard setting attention.

This month’s letter will bring you up to date on the status of proposed changes.  Why is this important?  Financial reporting requirements ultimately affect your access to liquidity.  We hope this month’s report provides useful insights.  As always, the goal of our monthly letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

What is the Industry Doing?

Leasing is a global business.  The Equipment Leasing and Finance Association (“ELFA”) estimates the equipment leasing market is a $700 Billion business, with the U.S. accounting for about one third of that global market.  These statistics are just for equipment; add real estate leasing, which is larger, and we have a very large and growing business.  One that is at least partly driven by accounting.  Here’s a sampling of current issues:

  1. Lessee Accounting  The first exposure draft proposed a “right of use” asset approach requiring lessee capitalization of leases.  From a book reporting standpoint this results in replacing rent expense with amortization and imputed interest.  Because of user community (lessees and financial analysts) feedback that this “front-ending” of “book” expense (a non-cash expense) would have real economic cost this whole area is now actively under reconsideration.  The FASB appears to favor “interest based” amortization which would more closely match the cash rents being paid; the IASB favors amortization of the right of use asset to the residual value of the underlying leased asset (giving longer lived assets a less front loaded lease cost pattern).  Both methods are being tested by users and preparers.  It is likely there will be changes.
  2. Lessor Accounting  The Boards have decided that there will be one lessor accounting method for all leases called the “receivable residual” (“R&R”) method.  There will be three exceptions: short term leases can be accounted for under the current GAAP operating lease method, real estate leases can be accounted for at fair value using the investment properties method if the lessor is a real estate investment company, and, leases of investment property assets (multi lessee leases of commercial real estate) may be accounted for under the current operating lease method.
  3. Leveraged Lease Accounting  Leveraged lease accounting is eliminated with no grandfathering.  This is a FASB issue only.  New leveraged leases may be allowed offsetting of the rent & debt service (to be determined) under the “Balance Sheet Offsetting” project that the Boards are separately working on.  The Boards are not allowing tax affected revenue recognition for any lease.
  4. Lessee & Lessor Transition  For lessees capital leases are grandfathered.  Lessee operating lease “obligations” would be booked at the PV of remaining rents with the “right of use” asset booked but adjusted by the ratio of remaining rent to total rents at inception.  For lessors direct finance leases and sales type leases are grandfathered.  For operating leases book the PV of the rents as an asset, de-recognize the operating lease asset and the difference is the residual.
  5. Scope  New reporting rules are to cover all leases of a “specified” asset, which includes leases of explicitly or implicitly identifiable property, plant, and equipment as under current GAAP.  Also included will be “inventory items” such as spare parts.  Guidance will not be provided in the leases standard for distinguishing a lease of an underlying asset from a purchase or a sale (installment contract).
  6. Rates for Lessee and Lessor Accounting  Lessees will use their incremental borrowing rate unless the implicit rate in the lease is known.  Lessors will use the implicit rate in the lease to calculate the present value of their receivable and to accrue revenue.
  7. Sale Lease Backs  If the transaction is considered a sale under the revenue recognition standard, account for the transaction as a sale leaseback, otherwise, consider it a financing/loan.  When the sales price and leaseback rents are at fair value, gains or losses arising from the transaction are recognized immediately.  When sales price and rents are not at fair value, the assets, liabilities, gains and losses should be adjusted to reflect the current market.
  8. Residual Guarantees  The Boards reiterated their conclusions that a third party residual guarantee is not a minimum lease payment for the lessor.  For lessors a residual guarantee will not be recorded until the residual is resolved.  Guarantees will not convert the residual asset to a financial asset  (it will not affect gross profit recognition).
  9. Timeline for Re-Exposure  A new exposure draft may be issued later this year with a 120 day comment period.  If so, mid-2013 is the earliest a new standard may expected to be issued.  The effective date?  Most likely 2016 due to the current slippage.  The transition date also depends on the progress of the Boards’ Revenue Recognition project as they would like both to have the same transition date.
  10. Conclusions  The Boards are currently split with regard to Lessee accounting: the FASB favoring one lessee view while the IASB favors another.  Project timing will depend on resolution of this issue.

If the new rules seem complicated, that’s because they are.  Rule makers perceive abuse by companies that structure around the 90% ownership test that currently determines whether a contract is an operating lease and therefore is not on the balance sheet.  Most stakeholders however are not convinced that the intended benefits will be worth the additional cost and effort.

Lease finance is an area where lessors may choose to deliver lower lease payments by assuming a higher residual.  For the lessee this is truly a cash-flow issue.

Being proactive includes participating in the “outreach” meetings currently being held by the FASB/IASB.  Make your business issues known by presenting the impacts these proposed rules will have on your access to liquidity.  Regardless of the outcome, one thing is sure, lease structuring will continue, so plan accordingly.

Some say the future cannot be predicted.  Others say the only way to predict the future is to create it!

 

About Our Law Firm

We provide peace of mind by creating and managing structures that allow you to grow and protect your business, legacy, and personal wealth.  “Where you’ll be tomorrow, depends on what you do today.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and tax  advisory services.  We add value to your business investment strategies by providing a  combination of  financial, audit, and tax expertise.  Combined with legal services which are provided separately by the Lechner Law Office, P.C. we offer the small to mid-sized privately held business owner an attractive package of comprehensive services.  Recent assignments include acquisition diligence reviews and transaction structuring.Find out more by calling Paul Lechner at 708.460.6686.

In This Issue
Lease Finance
Next Month: “Trust” is Not an Internal Control Mechanism
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy.  He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago.The Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Estate and Asset protection planning for their families and  personal assets.

Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 

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Tax Expense is a Real Cost!

February 6th, 2012 by Paul No comments »
 Tax – 2012
Higher Taxes on the Horizon  
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 

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Paul Lechner, Esq. CPA

Guess what?  2010 was just practice.  What happens at the end of 2012 will be 2013 madness.   Will Congress extend the Bush era tax cuts?  Or the Estate Tax?  No AMT patch?  Will the new 3.8% Medicare tax on your “unearned” income go into effect; or, will the Supreme Court throw out the entire Affordable Care Act (arguments in March 2012, a decision expected in the Summer of 2012)?

2012 is an election year; this only adds to the uncertainty.  Expect nothing to be done until after the election. And then, perhaps not until 2013.  If Republicans are elected they will take NO action in the lame duck session of Congress (after the November Election) and will wait until the new President and Congress are sworn in, in 2013.

What should you be planning in anticipation of this uncertainty?  Big Government means Big Taxes; and, tax expense is a real cost.  Cash planning relies on integrity not illusion, management not manipulation.  We hope this month’s report provides useful insight into ACTIONS you might take.  Tax planning is about cash planning.  As always, the goal of our monthly letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

Top 10 Tax Planning Issues

Our top ten are:

  1. Your Hedge Fund Investments  Many individuals have increased their use of this type of investment in an effort to obtain higher yields.  If you are invested in Hedge Funds expect your General Partner will provide only a rough  “estimate” of tax for your April 15th filing deadline.  As a result, you will need to request an extension for filing your personal return until you receive full supporting  information and can sort out the details behind your K-1 investment schedules (especially if you are invested in currency or commodity hedge investments).
  2. Foreign Bank and Financial Assets  You may have a financial interest or signature authority over a foreign financial account.  If the aggregate value of your accounts is greater than $10K you must file Treasury Division form TD F 90-22.1.  This form must be filed by June 30th (not your tax return filing date).  AND, this year, there is a NEW IRS “Form 8938″ that is in addition to the FBAR.  This form must be filed with your tax return and filing is required by those individuals with foreign financial assets greater than $50K.   What if you own foreign Real Estate in an LLC?  File.  There are “stiff” penalties for noncompliance.
  3. S Corp Shareholders  Many of us utilize “flow through” entities in our business endeavors.  S Corp shareholders prefer dividend distributions to save payroll tax.  This is a HOT IRS audit area.  Recent cases provide guidance on what constitutes a “reasonable” salary;  its a “facts and circumstances” test.  If you have a “personal service” business not all profits are required to be treated as “income.”  See Watson v. U.S., a 2010 case, for details of what constitutes a “reasonable” salary. Another IRS audit hot button is maintenance of your “basis” schedules; ensure these are up to date.
  4. Independent Contractor vs. Employee ?  You may want to consider reclassification of your workers as employees under the IRS “Voluntary Classification Settlement Program.”  Misclassification can have significant payroll tax, retirement, health care, and State unemployment, disability and workman’s compensation impacts.  The Federal program allows a small payment (approximately 10% of the amount due for last year) with relief for all prior years.  However, be aware of State tax exposure.
  5. State and Local Tax  Where is your “nexus” in a virtual world?  If you are dealing on EBay you may need a sales tax vendor number.  There is no “deminimus” exception.  If you have telecommuters who work from home (in another state) you may find yourself subject to state taxes in that state. Civil Unions?  Review what needs to be addressed between Federal and State filings or until Congress or the Supreme Court step in.
  6. Cancellation of Debt  If you are liable for cancelled debt, then such amount is generally includible in your gross income (exceptions to inclusion include gifts, bequests, and certain qualified student loan debt forgiveness).  The Mortgage Forgiveness Debt Relief Act provides an exclusion of debt discharge of up to $2MM if married filing joint ($1M if filing single) on your principal residence through 2012.  Forgiven credit card debt?  You must be able to show insolvency on the date the debt was forgiven to qualify for exclusion.
  7. Basis Reporting Rules  Your Schedule D will be new this year with required Form 8949 attachments.  What costs basis will you choose for reporting your securities investments?  The default is “average” cost, but you may choose, FIFO, LIFO, specific identification; Notice 2011-56 includes details.
  8. Gross Receipts Reporting  Do you accept credit card payments from your customers?  Expect to receive a 1099K by January 31, 2012, in addition to a 1099 misc.  Be wary of duplicate reporting since this is a transition year.
  9. Estate Tax Uncertainty  This year we have a $5M exemption, a 35% maximum tax rate, and “portability”.  The GSTT and Lifetime Gift tax exclusion are the same as the Estate Tax Exclusion.  With no action we will return to a $1M exemption and a 55% maximum estate tax rate in 2013.  Unanswered is whether there will be a “clawback” of 2011 and 2012 $5M gifts made if you pass after 2012 and we are back to a $1M gift tax exclusion.
  10. Income Tax Uncertainty  Are we returning to the 2001 tax brackets of: 15%, 28%, 31%, 36% and 39.6%?  Will long term capital gains be 20%?  No AMT patch, no more qualified dividends?  Plan on maximizing your itemized deductions this year if possible to take advantage of this years tax rates.

And, remember the increased Medicare Tax that is coming.  Currently we pay 1.45% of “covered wages.”  In 2013 expect to pay a .9% Medicare Surtax on “earned income in excess of $200K if you are single, and $250K if married.  This will lead to estimated tax underpayments since your employer will not take into consideration your spouses wages.  What about year end bonuses and self employment income?   Watch to see what the Supreme Court does with the Affordable Care Act which is scheduled to implement a 3.8% Medicare tax on “unearned” income in 2013.

Two things you can be sure of: 1) Congress will not act until after November and 2) our Federal (and State) Government’s current budget deficit argues strongly for higher taxes.

There is no single strategy that works best for everyone.  You must consciously make an effort to develop better cash flow by making the right decisions over time.  Plan accordingly.

Being proactive includes developing a tax checklist to help you “issue spot” what you can do to improve cash flow.  Call us for a tax checklist that ranges from the familiar to the relatively obscure.  It is important to review your planning process now so that you can be prepared and flexible when required.  Visit the tax page at www.lechnerlaw.com to download a current 2012 tax table.

Some say the future cannot be predicted.  Others say the only way to predict the future is to create it!

 

About Our Law Firm

We provide peace of mind by creating and managing structures that allow you to grow and protect your business, legacy, and personal wealth.  “Where you’ll be tomorrow, depends on what you do today.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and tax  advisory services.  We add value to your business investment strategies by providing a  combination of  financial, audit, and tax expertise.  Combined with legal services which are provided separately by the Lechner Law Office, P.C. we offer the small to mid-sized privately held business owner an attractive package of comprehensive services.  Recent assignments include acquisition diligence reviews and transaction structuring.

Find out more by calling Paul Lechner at 708.460.6686.

In This Issue
Tax Planning 2012
Next Month: Lease Finance
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy.  He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago.

The Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Estate and Asset protection planning for their families and  personal assets.

Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 

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Core Values

January 8th, 2012 by Paul No comments »
 Reasoning with Principles    
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 

Law Office Logo
Paul Lechner, Esq. CPA

Business owners, like Republican Presidential hopefuls, face challenges every day.  Since your business tends to be your main wealth engine, successful decision making is required to live well, to pursue new goals and objectives, and to leave a legacy to the next generation in the business.

Decisions are sometimes difficult because a public consensus has not emerged to formulate a comprehensive ethical system that can provide guidelines in making ethical judgements.  Theory describes what to do and why, practice is the application of those theoretical guidelines to actual situations; it is impossible to separate the two.  In daily activities, business leaders are called on for moral discernment.  Have you consciously developed a  conceptual ethical framework?  Doing so will allow you to promulgate a coherent set of standards and rules for your business.  It will allow your organization to solve practical problems systematically and quickly.

The start of the year is a good time to reflect and understand the basics of how you make decisions.  Doing so will allow you to be more efficient in choosing alternatives.

We hope this month’s report provides useful insight into how you problem solve.  Re-energize your organization with these approaches.  As always, the goal of our monthly letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

Practical Reasoning

The use of ethical principles, as opposed to an intuitive use of common sense, may improve reasoning in complex organizational situations.  Men and women tend to process information differently.  Men tend to see themselves as autonomous separate individuals in a competitive, hierarchical world of superior-subordinate relationships.  Women see a world of relationships, a world in which people are interconnected in webs rather than arrayed in dominance hierarchies.  Simple homilies such as “tell the truth” or “be fair” are sometimes insufficient to resolve difficult conflicts.  Many of us focus on the mechanics of getting things done without thinking about the reasons we are doing what we do.  Formulating a conceptual framework for your activities will result in a more efficient approach to problem solving.

Here are some practical steps to better define and resolve ethical problems:

  1. Learn to Think About Ethics in Rational Terms  Use ideas such as universal application, reversibility, utility, and proportionality.  Use of such ideas will enhance your ability to see ethical problems clearly and create acceptable solutions.
  2. Use Simple Decision Making Tactics  Bertrand Russell advocated imaginary conversations with a hypothetical devil’s advocate.  You might use a two column work sheet to enter the pros and cons of various alternatives.  The process of entering relevant factors sometimes brings new or unconscious considerations to light.  Ask yourself a series of critical questions, consider key policies, principles and relationships.  Are your actions legal?  Are they fair and honest?  Consider your fiduciary obligations.  Will your actions stand the test of time?
  3. Sort Out Your Ethical Priorities  Serious ethical dilemmas can generate paralyzing stress.  Clear values reduce stress by reducing temptation and easing your conscience as a source of anxiety.  For example, when being honest means sacrificing a sale, it helps to clarify in advance that that integrity is more important than money.
  4. Be Publicly Committed  Examine your workplace to find sources of ethical conflict.  Set the “tone at the top.”  Tell your employees and co-managers about your opposition to actions that compromise company policies.  Public commitment will force you to maintain your standards.
  5. Set an Example  This a managerial function.  An ethical leader creates a morally uplifting workplace.  An unethical manager may make money, but he or she (or the company) will pay the price; and the price is an immediate loss of integrity and a future loss of business.  Say what you mean and do what you say.  You are never without the ability to choose.  Trust is essential for our interconnected Global economic network to work successfully.
  6. Translate Your Thoughts into Action  Ethical deeds often require courage.  Reaching a judgment is easier than acting.  Ethical positions may cost your company business.  Holding principles above personal benefit is the essence of integrity and honor.  Integrity is the essence of long term business success.
  7. Cultivate Sympathy and Charity towards Others  The question, “What is ethical?” is one on which well-intentioned people may differ.  Marcus Aurelius wrote:  “When you are offended by any man’s fault, turn to yourself and reflect in what like manner you err yourself; for example, in thinking that money is a good thing, or pleasure, or reputation.”

Perfection is illusory.  We live in a morally complex world with endless rules, norms, obligations, and duties.  No decision ends conflicts, no principle penetrates unerringly to the Good, no manager achieves sainthood.

Aristotle wrote that moral virtue is the result of habit.  He believed that by their nature ethical decisions require choice, and that we build virtue, or ethical character, by habitually making the right choices.  Just as we learn to play piano through daily practice, so we acquire virtues by constant practice, and the more conscientious we are, the more accomplished we become.

There is no single strategy that works best for everyone.  Application requires you consciously make an effort to develop a better business by making the right decisions over time.

Tax Planning – 2012  Being proactive includes developing a tax checklist to help you “issue spot” what you can do to improve cash flow.  Call us for a tax checklist that ranges from the familiar to the relatively obscure.  It is important to review your planning process now so that you can be prepared and flexible when required.

Some say the future cannot be predicted.  Others say the only way to predict the future is to create it!

 

About Our Law Firm

We provide peace of mind by creating and managing structures that allow you to grow and protect your business, legacy, and personal wealth.  “Where you’ll be tomorrow, depends on what you do today.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and tax  advisory services.  We add value to your business investment strategies by providing a  combination of  financial, audit, and tax expertise.  Combined with legal services which are provided separately by the Lechner Law Office, P.C. we offer the small to mid-sized privately held business owner an attractive package of comprehensive services.  Recent assignments include acquisition diligence reviews and transaction structuring.

Find out more by calling Paul Lechner at 708.460.6686.

In This Issue
Reasoning with Principles
Next Month: Tax Planning
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy.  He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago.

The Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Estate and Asset protection planning for their families and  personal assets.

Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 

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Illinois Updates Medicaid

December 14th, 2011 by Paul No comments »
Illinois Updates Medicaid

New Rules Effective January 1, 2012
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 
Dear Paul

Law Office Logo
Paul Lechner, Esq. CPA

If you have an older Family member you expect will require long term care this Month’s letter reviews Illinois’ recent implementation of the Deficit Reduction Act and new administrative rules being implemented by the Illinois Department of Healthcare and Family Services that become effective January 1, 2012.

This past October 11, 2011, the Joint Committee on Administrative Rules (JCAR) in Illinois voted to lift the prohibition on implementation of the Deficit Reduction Act of 2005 (DRA) proposed rule changes previously made by the Illinois Department of Healthcare and Family Services.  As a result, Illinois will finally (six years late) implement their version of the federal rules regarding Medicaid eligibility.  The new rules will affect eligibility for long term care Medicaid coverage, namely, coverage of nursing home care, supportive living facilities (assisted living), and community care (in-home services).

We have summarized below some of the more significant areas you should be aware of.

We hope this month’s report provides useful insight into these new regulations.  As always, the goal of our monthly letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

A Primer on the New Illinois Medicaid Rules

Illinois officials have reached a compromise on rules for implementing the asset-transfer provisions of the Deficit Reduction Act of 2005 (DRA).  The agreement removes some of the harshest provisions that were proposed by the state’s Department of Healthcare and Family Services (HFS) earlier this year.  However, the “compromise” still includes provisions elder law attorneys are not pleased with.  As Otto von Bismarck, a German aristocrat, Prime Minister of Prussia, and First Chancellor of Germany once said, “Laws are like sausages, it is better not to see them being made.”Under the compromise agreement Medicaid Applicants who made asset transfers prior to November 1, 2011 will be covered under the former rules by a generous hardship waiver allowing them to sign affidavits stating they relied on the old rules for transfers.  Below we discuss some of the more important provisions of the new regulations which are effective January 1, 2012.  Should you have questions regarding any of the updates and how they might affect your family planning, please contact our office for further information.

  1. 60 Month Look Back  For applications filed on or after January 1, 2012, the new rules regarding transfers and penalties will be applied if an impermissible transfer was made on or after November 1, 2011.  Transfers made within 60 months prior to the application for medicaid (“look-back” period) that do not qualify as a “permissible” transfer will trigger a period of ineligibility.
  2. Penalty Period Calculation  The penalty period will be calculated by dividing the total value of uncompensated assets transferred by the average monthly cost of long-term care services at the private rate in the community in which the person is institutionalized at the time of the application.  There will be no more “dropping” of partial months in the penalty period calculation, rather the penalty period will be calculated in months, days, and portions of a day.
  3. No More “Half-Loaf” Planning  Transfers prior to January 1, 2012 will continue to be eligible for partial returns, however, transfers post January 1, 2012 will require a return of all the assets prior to the imposition of the period of ineligibility.
  4. Allowable Transfers  Certain transfers are “permissible” and do not affect eligibility.  Some examples include transfer of the homestead to the applicant’s spouse, to a child under 21 years of age (or a blind or disabled child), a transfer to the applicant’s brother or sister who has an equity interest in the home and has been living in the home for at least one year prior to application, or a transfer to the applicant’s child who provided care to the applicant and lived with the applicant in the home for the two years prior to the date the person became institutionalized (provided that credible tangible evidence is provided).
  5. Community Spouse Rules  Spousal “impoverishment” protections apply to an institutionalized person’s spouse who resides in the community.  A community spouse resource allowance (“CSRA”) is allowed without affecting the institutionalized spouse’s eligibility.  The CSRA for 2012 will be $113,640.  In addition, the community spouse is entitled to a contribution of monthly income from the resident spouse to bring the community spouse’s monthly income up to what is know as the Minimum Monthly Maintenance Needs Allowance (“MMMNA”).  The MMMNA for 2012 will be $2,841.  However, if the community spouse’s income exceeds this amount, Illinois will require a support payment be made on behalf of the resident.
  6. Trusts and Annuities  Special rules apply to determine whether assets held in trust or as annuities will be considered a person’s resources.  Trusts created after August 11, 1993 will be treated as resources of an applicant, if the person’s resources were used to form all or part of the principal of the trust and the trust ia a non-testamentary trust.  Ownership or purchase of any annuity must be disclosed.  The purchase of an annuity by an institutionalized person will be treated as a transfer for less than fair market value unless it is purchased from a commercial financial institution (or insurance company), is actuarially sound and based on the estimated life expectancy of the person, and is irrevocable and non assignable (benefits must be paid in approximately equal periodic payments with no balloon or deferred payments).  Illinois must be named as the first remainder beneficiary, unless there is a community spouse or minor child.
  7. Application and Appeals Process  Preplanning for long term care is a complex process.  The preparation of an application for Medicaid coverage for a long-term nursing home stay can be a daunting task.  The application is extensive and applicants are required to submit numerous documents.  For applications filed on or after January 1, 2012, the required supporting documentation will increase from 36 months of financial records to 60 months of financial records.  An application that is denied may be appealed.  The appeal must be in writing and filed within 60 days of the decision.

When it comes to care planning you should consider seeking the assistance of an Elder Law attorney.  An Elder Law attorney can assist in comparing options and strategies available to preserve assets.  Each family situation should be analyzed as to possible approaches and viable planning strategies should be developed and considered prior to Medicaid application.  Our firm follows a process that begins with a data-gathering interview and continues through implementation, maintenance, tax and subsequent probate and trust administration.

There is no single strategy that works best for every family.  Planning is best completed on a case by case basis.  We can help you consider available alternatives and select a strategy that will provide the best result for your situation.

Tax Planning – 2012  Being proactive includes developing a tax checklist to help you “issue spot” what you can do to improve cash flow.  Next month will review a number of specific strategies.  Call us for a tax checklist that ranges from the familiar to the relatively obscure.  It is important to start your planning process now so that you can be prepared and flexible when required.

Some say the future cannot be predicted.  Others say the only way to predict the future is to create it!

 

About Our Law Firm

We provide peace of mind by creating and managing structures that allow you to grow, protect and transfer your business and personal wealth.  “Where you’ll be tomorrow, depends on what you do today.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and tax  advisory services.  We add value to your business investment strategies by providing a  combination of  financial, audit, and tax expertise.  Combined with legal services which are provided separately by the Lechner Law Office, P.C. we offer the small to mid-sized privately held business owner an attractive package of comprehensive services.  Recent assignments include acquisition diligence reviews and transaction structuring.Find out more by calling Paul Lechner at 708.460.6686.

In This Issue
Illinois Updates Medicaid
Next Month: Tax Planning
Attorney Spotlight
Paul Picture
Paul is a VA Accredited Attorney who instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy.  He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago.Our Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Estate and Asset protection planning for their families and  personal assets.

Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 
NAELA

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Unlocking Government Money

November 10th, 2011 by Paul No comments »
Unlocking Government Money

Veterans Benefits
Tax Planning For the Elderly
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com

Law Office Logo
Paul Lechner, Esq. CPA

If you have an older Family member you expect will require long term care this Month’s letter reviews how Veteran Benefits may fit into your care planning alternatives and also provides an overview of relevant tax-related laws that can improve the financial well being of that older family member.

Long term care includes health services that are provided in non-hospital facilities for chronically ill or disabled individuals. This may include custodial care, maintenance or rehabilitation care for debilitating health conditions, physical disabilities and/or cognitive impairment. This care can be provided on on inpatient basis (such as in nursing homes or group homes), or on an outpatient basis (such as adult day care) or in a person’s home.

Skilled care is given when an individual needs skilled nursing or rehabilitation staff to manage, observe and evaluate his/her needs. Care that is given by non-professional staff is not considered skilled care.

We hope this month’s report provides useful insight into alternative solutions. As always, the goal of our monthly letter is to provide relevant content you can use in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.

Veterans Benefits and Tax Planning for the Elderly

The cost of long term care varies within the State. A skilled nursing facility is typically more expensive than home health care, but, if skilled help is brought into the home the cost can be strikingly similar. In large metropolitan areas costs generally are substantially higher than in rural areas.While Medicare will pay 100% of the first 20 days of care in a Skilled Nursing Facility (“SNF”), thereafter Medicare will pay for only a portion of daily expenses between the 21st to 100th day (and nothing thereafter). An appropriate Medigap Plan will pay for the individual’s share of the bill from days 21 through 100.But what if long term custodial care is required beyond the 100 day period? Self-employed business owners, partners, members of an LLC, or shareholders of a Subchapter S or C Corporation should confirm the deductibliity of tax-qualified Long Term Care policy premiums as a business expense.An often overlooked source of additional government money is the availability of a “pension” for Veterans (or their surviving spouses) who served during a “war” period. The basic Veteran’s pension may be enhanced if “homebound” or if the Veteran requires “Aid & Attendance”. Eligibility to access this monthly cash benefit (which may be as much as $1,949 monthly) are different than Medicaid eligibility rules so it is best to review your situation with a VA Accredited Attorney.These benefits may allow you to keep a loved one at home or may be a great way to help pay for assisted living. Eligibility requirements for a VA pension include:

  1. To Quality The Veteran must have served 90 days of active duty with at least one day during a “war” period. He (or she) must be 65 years old, with a discharge other than dishonorable, have substantial recurring medical expenses and limited household income and assets to pay those expenses.
  2. Wartime Periods WW II from December 7, 1941 to December 31, 1946; Korean War from June 27, 1950 to January 31, 1955; Vietnam from August 5, 1964 to May 7, 1975. Persian Gulf War Vets are generally not yet over 65.
  3. Non-Service Pension Disability does not have to be tied to military service. The Veteran must be permanently and totally disabled OR simply over the age of 65 to be eligible.
  4. Income Test: The “Critical” Calculation The VA will pay the excess that the maximum available pension per category of need exceeds income for VA purposes. Income for VA purposes is calculated to include gross household income less continuing unreimbursed medical expenses.
  5. Net Worth Limitation The house, car, household and personal goods, and certain annuities are exempt. Historically the countable asset limitation was “about” $80K for a couple, and “about” $50K for an individual. Now however, the VA has no exact limit but rather evaluates the Veteran’s life expectancy and ability to pay for self-care. Note that currently there is no “penalty” for gifting “excess” assets to other family members; but any gifting should be coordinated with the potential future need for Medicaid.
  6. On Approval On approval the Veteran receives free VA medical (no co-pays), free prescriptions through the VA pharmacies for formulary drugs and a monthly pension which may be enhanced if the Veteran is “homebound” or requires Aid and Attendance.
  7. Who can help you File? The VA, Department of Veterans’ Affairs, any Veterans’ Service Organization, a VA Accredited Attorney, or a Designated Personal Representative.

When it comes to care planning this benefit should be considered prior to Medicaid application. Our firm follows a Ten Step process that begins with a Data-gathering interview and continues through implementation, maintenance, tax and subsequent probate and trust administration.

There is no single strategy that works best for every family and planning is best completed on a case by case basis. We consider all available alternatives and then determine the strategy that will provide the best result.

Tax Laws that Affect the Elderly Being proactive includes developing a tax checklist to help you “issue spot” what you can do to improve cash flow. Call us for a tax checklist that ranges from the familiar to the relatively obscure. It is important is to start your planning process now so that you can be prepared and flexible when required.

Some say the future cannot be predicted. Others say the only way to predict the future is to create it!

 

About Our Law Firm

“We provide peace of mind by creating and managing the structures that allow you to grow, protect and transfer your business and personal wealth.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and advisory services. We add value to your investment strategies by providing a combination of financial, audit, and tax services. Legal services, including business counsel, tax planning, and transaction support, are provided separately by the Lechner Law Office, P.C. Recent assignments include acquisition diligence reviews and transaction structuring.Find out more by calling Paul Lechner at 708.460.6686.
In This Issue
Veteran Benefits and Tax Planning for the Elderly
Next Month: Illinois Updates Medicaid
Attorney Spotlight
Paul Picture
Paul is a VA Accredited Attorney who instructs in the “Financial Fraud” Certificate Program at the Chicago Police Academy. He is an Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago.Our Firm provides Business Advisory, Tax and Transaction Services to privately owned entrepreneurial business owners with Estate and Asset protection planning for their families and personal assets.
Testimonials

“The Lechner Group, Ltd.” exceeded our expectations in timely delivery of transactional diligence services. We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO
NAELA

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Exploring Veterans Benefits

October 6th, 2011 by Paul 1 comment »
Exploring Veteran Benefits   I Served My Country    
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 

Law Office Logo
Paul Lechner, Esq. CPA

The Veterans Administration maintains programs designed to provide financial assistance to wartime veterans or their surviving spouse who lack the funds necessary to pay for the assistance they require with routine activities of daily living.  A wartime or service related disability is not required and wartime veterans who have a non-service connected disability such as advancing age are eligible.  A base level pension can be supplemented with additional benefits called “Housebound Benefits” and further with “Aid and Attendance Benefits”.  Qualification for the Veteran’s pension is based on a number of factors such as time of service, medical need, liquid assets, and income.  Surviving spouses are also eligible but must have been the legal spouse of the eligible veteran at the Veterans death (and not remarried) to be eligible for this VA benefit program.

This month’s letter provides information for those families where access to this financial assistance can make a difference in the quality of life provided for your aging parents.  Our goal is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.
Uncle Sam Wants to Pay Me Back?

When a person requires someone else to help with physical or emotional needs over an extended period of time, this is long term care.  Help may be required for a terminal condition, disability, illness, injury, or the infirmity of old age.  The older a person is, the more likely the need for long term care.  A Veterans pension is available to Veterans who served at least 90 days with at least one day during a period of war.  While many Veterans (or their surviving spouses) have income above the pension rate ceiling and would normally never expect to be eligible for this disability benefit, what is not generally known is that the VA, in calculating eligibility for this disability pension, allows the Veteran to reduce family income by the amount of recurring, future medical expenses that are not reimbursed (including insurance premiums, home care aids, assisted living or the cost of a nursing home).  Because of this the Veterans pension is extremely valuable in helping Veterans, their spouses, or their survivors pay for the high costs of home care, assisted living or nursing home care.  If your parents are in a situation where, due to their physical and financial condition, they are unable to care for themselves, you should investigate eligibility for this Veterans Department program.  The program will pay the difference between “countable” family income (income AFTER  permissible deductions e.g. recurring non-reimbursed medical expenses) up to $19,736 yearly for a Veteran without dependents or $12,681 for a widow of a veteran.There is both this income test and an asset test which must be met (however, a personal residence, personal property and automobiles for personal use are exempted form the asset test).  Currently there is no penalty from the VA if the Veteran chooses to “rearrange” assets as there is a penalty with Medicaid Planning.  So if  preplanning is to be done, coordinate your planning with the potential need for future Medicaid Planning.  Following is a general outline of the steps you might consider in making a claim:

  1. Determine the proper care setting and the monthly cost of care  Most people want to live and home, or alternatively with their children, and only then, if this is not possible, in an assisted living facility.  The majority do not want to go to a nursing home.  A reasonable goal allows Veterans and their spouses to remain as independent of care arrangements as possible as long as possible.
  2. Determine eligibility for pension  There are three different levels of pension: 1) Low Income Pension; 2) Pension with Housebound; and 3) Pension with Aid and Attendance.  Service record eligibility criteria are the same for each level, however, the medical and financial criteria are different at each level.
  3. Calculate total income, recurring medical expenses, and total assets.  Recurring, non-reimbursed medical expenses of BOTH the Veteran and spouse are deductible from gross income.  These expenses typically include medical premiums, such as Medicare premiums, supplemental health care premiums, prescriptions, doctors visits, home health care, assisted living facility care and nursing home care.  Under certain levels of care, family members can be paid caregivers, which is a deductible expense (if housebound must be licensed caregiver, if aid and attendance can be unlicensed family member [but not the spouse]).
  4. Decide if the amount of assets will meet an asset test applied by the local regional office and apply strategies, if necessary to reduce assets.  You can qualify for VA Pension even if your assets exceed the limit.  To receive the VA pension, you assets (net worth) must be under a certain dollar amount.  The VA currently determines this by comparing your assets to your expenses over your expected remaining lifetime.  If your assets are greater than your expenses for that remaining lifetime you will be denied.
  5. Make an estimate of the pension benefit (based on your proposed transfer of assets and readjustment of income  Trained attorneys who know the VA administrative rules and who are accredited by the VA can assist you in preserving your excess resources while still being awarded the pension.  Ensure you are coordinating this planning with the potential need for future Medicaid Planning.
  6. Arrange an exam or completion from the Veteran or claimants attending physician to be used by the VA  Each level of pension requires different levels of medical need.  Low Income Pension is the basic level of Improved Pension.  Veterans who are under 65, who cannot maintain gainful employment, and who are not expected to improve, will receive low income pension from the VA.  If the Veteran is 65 years old or older, the VA presumes disability, and it does not have to be proven.  If the Veteran is deceased and the surviving spouse is applying for low income pension, the spouse can be of any age and does not have to be disabled.  There are different medical tests for Pension with Housebound Benefits.  And, Pension with Aid and Attendance is easier to obtain than housebound benefits.
  7. Make sure care arrangements are in place and monies have been applied or arranged for the cost before making application.

Next Steps    Gather your necessary forms and documents to verify the costs of recurring medical expenses and request annualization of those costs.  Complete the appropriate claim forms, submit with the proper documentation and then manage additional requests from the regional office (retain your original documents [have copies certified as true and correct]).  Note it is better to submit all documents in one package.

About Our Law Firm

“We create and manage the structures that allow you to grow, protect and transfer your business and personal wealth.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

Financial Diligence Services
The Lechner Group, Ltd.  

AAA CPAThe Lechner Group, Ltd. is a registered public accounting firm focused on business counsel and transactional financial diligence.  We focus on providing a  combination of legal, tax, and financial services to  the privately owned business market.  Recent assignments include acquisition reviews and transaction structuring.Find out more by calling Paul at 708.460.6686.
In This Issue
Exploring Veteran Benefits
Next Month: Business Planning, Life Planning, Asset Protection
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” (Certified Fraud Examiner) Certificate Program at the Chicago Police Academy.  He is also and Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago and in the College of Business and Public Administration at Governors State University.
Testimonials

“The Lechner Group, Ltd.” has exceeded our expectations in delivering independent financial transactional diligence.  These  review services provided the information we requested and the comfort we needed to properly evaluate the economics of our transaction.

CEO 
NAELA

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Tax Strategies That Make Sense

September 12th, 2011 by Paul 2 comments »
Two Year Reprieve
Tax Strategies that make Sense
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 

Law Office Logo
Paul Lechner, Esq. CPA

You have temporary tax relief for the next two years, 2011 and 2012 thanks to the Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010 (signed December 17, 2010).  But, the relief is temporary, with sizeable tax hikes on the books for 2013.  The Bush tax-cuts will expire then and there will be new income taxes to pay for health care costs.  Individuals with $200,000 or more of AGI ($250,000, married filing jointly) will face an additional 3.8 percent tax on investment income and .9 percent on earned income from wages and self-employment.

In light of these changing rates what tax planning strategies make the most sense?  Certain economists anticipate that once the job market has recovered we can anticipate a rise in tax rates.  With that in mind 2011 and 2012 might be viewed as a two-year window in which to execute tax-saving strategies by accelerating taxable income into these two years.

Below we offer a summary of ten ideas, solutions and strategies you might consider.  Our goal is to provide relevant content you can use  in achieving your goals.

Paul Lechner
Lechner Law Office, P.C.
Ten Thoughts for Individual Tax Payers

  1. Ordinary Income – Focus on Marginal Rates  Existing federal income tax rates for individuals will remain in place for 2011 and 2012 (10%, 15%, 25%, 28%, 33%, and 35%).  For planning purposes you should focus on your “marginal” rate, the rate that applies to your last dollar of taxable income.  After 2012 expect higher marginal rates.
  2. Capital Gains  The top rate on net long-term capital gains remains at 15% in 2011 and 2012 (and the rate is 0% for net gains that would otherwise be taxed in the two lowest regular marginal brackets).  What do you expect it will be in 2013?  Plan accordingly.
  3. Dividends  What are you earning on your bank balances and treasury investments?  Dividends, like long term capital gains continue to receive favorable tax treatment in 2011 and 2012.  You will generally pay tax on qualified dividends at a maximum rate of 15%, and, in the lowest two regular marginal tax brackets, qualified dividends are tax free.
  4. Alternative Minimum Tax  Have you been surprised when you found you were subject to the alternative minimum tax (AMT) even if you had not paid it in the past?  If your AMT liability is higher than your regular tax, you will pay an additional amount on top of your regular tax.  You pay AMT if your AMT income is more than your AMT exemption ($48,450 filing single, $74,450 married filing jointly).  AMT tax rates remain the same at 26% and 28% for 2011.  This is a complex area and requires recomputing your taxable income under special rules.  Many deductions are not allowed for AMT purposes, and certain income that is otherwise nontaxable will be included in your AMT income.
  5. Personal Exemptions, Deductions and Credits  You can choose between claiming a standard deduction or deducting specific actual expenses, i.e. “itemized deductions”, generally deducting the larger of the two.  Under the 2010 Tax Relief Act, no one will see their itemized deductions reduced or their personal exemptions phased out for 2011 and 2012 (each personal exemption in 2011 will trim  $3,700 from your income for tax purposes).
  6. “Above” the Line Deductions  Certain expenses are deductible from your gross income in arriving at your AGI.  Examples include: qualified student loan interest of up to $2,500, alimony paid, self-employed retirement plan contributions and health insurance account (HSA) contributions.  Above the line deductions are especially valuable because they reduce your AGI, potentially allowing you to qualify for tax benefits you  wouldn’t otherwise be eligible for if your AGI were higher.
  7. Charitable Contributions  You may deduct as an itemized deduction cash or property you give to a qualified charitable organization during the year, subject to AGI based limitations.  Excess contributions may be carried forward to future years.  Contributions of appreciated securities make a lot of sense.  If you’ve held the securities for longer than one year you’ll generally receive a deduction for their full market value on the date of the gift and will not have to include the appreciation in your income.
  8. Employment Related Expenses   Employee business expenses are deductible as an itemized deduction.  They are combined with certain other miscellaneous deductions you may have, such as investment management fees, and only the amount that exceeds 2% of your AGI is deductible. Your business travel, entertainment, and car expenses are potentially deductible if your employer does not reimburse you (if your are reimbursed they are deductible only to the extent your employer includes the payments in your taxable wages on your W-2).
  9. Credits  Make sure you take advantage of any tax credits available to you.  A tax credit reduces your tax dollar for dollar, and, certain tax credits are refundable for eligible taxpayers whose tax liabilities are not high enough to absorb the credit.
  10. Other Factors  Taxes are just one factor to consider in your decision making.  Recognize that understanding and actually taking action can impact on your cash tax costs.

Selling your home, timing capital gains and losses, ensuring you are taking advantage of education tax incentives, and saving for retirement; these and other areas deserve a close review.   Spend some time on these items yourself, or with your Tax Preparer or Tax Attorney (for complex situations)  and your results will be better for your efforts.

About Our Law Firm

“We create and manage the structures that allow you to grow, protect and transfer your business and personal wealth.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

Illinois Medicaid Update
Changing your Planning Strategies 

NAELANext month we’ll look at strategies to protect your Family Assets from devastating nursing home costs.  Most people with children would prefer to be able to pass on at least a part of their life savings and the family home to their children.  We’ll explain the changes in store as a result of Illinois expected enactment of the Deficit Reduction Act of 2005.  Constantly changing laws provides the incentive for you keep current and review your plans on a regular basis.Find out more by calling Paul at 708.460.6686.
In This Issue
Ten Thougts for Individual Tax Payers
Next Month: Middle Class Asset Protection – Medicaid and Long Term Care
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” (Certified Fraud Examiner) Certificate Program at the Chicago Police Academy.
Testimonials
“Lechner Law Office recently completed our  Corporate Annual Legal Audit.  This annual review  gives us the peace of mind that our corporate records and minute books are being properly maintained.”A Business Owner

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Business Advisory – Scenario Planning

September 12th, 2011 by Paul No comments »
                       Convergence Corner

                          Scenario Planning

 

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
www.lechnerlaw.com
 
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Paul Lechner, Esq. CPA

Scenario planning was used in the 1960′s by military planners studying the idea of a nuclear exchange between Russia and the United States.  With no historical precedent for an exchange of atomic bombs, military planners drew up “scenarios” of how such a battle might advance.  You might enjoy a look at the 1964 film “Fail Safe” depicting the destruction of Moscow and New York as an example.

World economies today are suffering the continuing effects of a financial “crisis” caused by unbundled mortgage products sold internationally by major US Capital Markets Institutions.  These financial investments turned out to be something they were not.  These product misrepresentations and the financial reporting “shenanigans” by a few major US Corporations resulted in a breakdown in market mechanisms.  Markets do not operate efficiently without an implicit level of “trust”.  With a real fear that financial markets would “freeze” and capital flows would stop, Sovereign debt seemed to be the solution.  Today we have replaced one crisis with another.

Here’s a simple analogy.  Eating too much for dinner may result in an upset stomach.  A solution?  Take two tums, or perhaps some pepto bismol to relieve your stomach discomfort.  Your real problem however will not disappear until the morning after when you are able to eliminate the overload in your digestive tract.  Similarly we are witnessing world economies going through this painful investment elimination process.

Einstein once said, “Problems cannot be solved at the same level of awareness that created them.”

This report is one of a continuing series that will provide insight into how to develop acceptable solutions.  As always, the goal of our letter is to provide relevant content you can use  in achieving your business and personal goals.

Paul Lechner
Lechner Law Office, P.C.
Scenario Planning

Some of us “see” only when a “crisis” opens our eyes.  If the U.S. Post Office could have foreseen the impact email would have on demand for its daily mail delivery services it may have developed alternatives early on.  Survival results from being sensitive to your environment, anticipating change, and being proactive, not reactive; scenario planning helps.Scenario planing requires an understanding of underlying forces that have the power to change future events that impact your business.  It’s not an attempt to “predict the future” but rather an envisioning of possible future environments, an evaluation of possibilities, and a planning of how to adjust your current activities to best position yourself.  It’s more than using a spreadsheet program that allows an evaluation of alternative future results with changes in key business variables.  It begins by thinking of environments outside the realm of current reality.  This “play” is a method of learning, one that is much less expensive than experimenting with reality itself!  Open your mind to changes beyond the typical business variables you might consider; and consider the results your current actions will have on your future position.  How will you get where you want to be?Visualize test flying your plane in a “wind tunnel” buffeted continuously by fundamental changes in your external environment.  It is playing to learn to survive.

To get in the proper frame of mind consider some of following broad historical forces; how should you prepare?

  1. Technology  Throughout history new technologies and devices have fueled commerce and reshaped societies;  the printing press, the steam engine, electricity, the automobile, aviation, Microsoft, Apple, outsourcing.
  2. Knowledge  Have we become a society where ideas and application of those ideas are more important than capital, than labor?
  3. Globalization  With improvement in communication and transportation, networks of economic, political, social, military and environmental interdependence have grown to span worldwide distances.  Nations have additionally opened themselves to foreign trade and investment creating world markets for goods, services, and capital.
  4. Ideologies  Thought shapes history.  An ideology is a set of reinforcing beliefs and values that construct a world view.
    • The “Arab Spring” and fall of Dictatorships/ Monarchies,
    • Theocracy and the rise of militant Islam,
    • Market Capitalism and Democracy,
    • Government Regulation or a “laissez-faire” environment where transactions are free from government intervention?
  5. Chance   Machiavelli observed that chance determines half the course of human events and human beings the other half.  If we cannot predict the future we can be prepared.

Next Steps  We are in a period when the country’s economic environment has become less stable and less predictable.  Demographic impacts will become more pressing.

Identify what You can do Now  Be proactive in developing your response by identifying what you can do now.  You should be contingency planning.  Details can vary.  What is important is doing this  analysis now will allow you to be prepared and flexible when change is required.

Some say the future cannot be predicted.  I say the only way to predict the future is to create it!

 

About Our Law Firm

“We create and manage the structures that allow you to grow, protect and transfer your business and personal wealth.”

Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
708-460-6686

The Lechner Group, Ltd.
Business Advisory Services   

AAA CPAThe Lechner Group, Ltd. is a public accounting firm focused on business counsel, transactional diligence, and lease advisory services.  We add value to your portfolio review strategies by providing a  combination of  tax and financial diligence services.  Legal services, including business counsel, tax planning, and transaction support, are provided separately by the Lechner Law Office, P.C.  Recent assignments include acquisition diligence reviews and transaction structuring.Find out more by calling Paul Lechner at 708.460.6686.
In This Issue
Scenario Planning
Illinois – Deficit Reduction
Attorney Spotlight
Paul Picture
Paul instructs in the “Financial Fraud” (Certified Fraud Examiner) Certificate Program at the Chicago Police Academy.  He is also and Adjunct Professor in the Graduate School of Business at Saint Xavier University in Chicago and in the College of Business and Public Administration at Governors State University.We provide planning applications of our analysis of the current and future impact of tax, legal and accounting developments on your Business and Personal Planning.
Testimonials

“The Lechner Group, Ltd.”  exceeded our expectations in timely delivery of transactional diligence services.  We were provided the comfort we needed to properly evaluate the economics of our transaction.

CEO 
NAELA

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