Jessica M. Kirsch
Editor-in-Chief

jkirsch@lavellelaw.com

Business Law

YOU WOULDN’T DRIVE WITHOUT A STEERING WHEEL…
…AND YOU SHOULDN’T DRIVE YOUR BUSINESS WITHOUT ONE EITHER
By James D. Voigt

    We often hear the cliché, “Drive your business.” In the same way that you must make constant steering adjustments while driving a car, driving a business also requires making constant adjustments. Driving your business without a business plan is like taking your hands off the steering wheel and hoping your car stays on the road. While your business plan will never be a perfect prediction of the future, how will you know when you’ve wandered off-path without it? Just as you occasionally swerve to miss a pothole while driving, or alter your course completely to avoid construction, your business will invariably require similar adjustments and reactions to everything going on around you.

    Arguably, the plan itself is not critical. The process of creating the plan, though, is an essential element to thinking through the way your company will make money, what it will cost to run it, and how it will grow. The key to creating a business plan is to simply start writing. In a single sentence, what does your company do? In another sentence, how does your company generate revenue? Another sentence, what are the costs to run your business? Finally, what will you do to grow your business?

    Working through our Small Business Practice Group, I see the most common oversights that small businesses make. The most common tax problem we see is businesses that failed to properly predict their tax liability for 940 and 941 taxes. In the planning stage, taxes are often overlooked as difficult to estimate or calculate. But to design your business without considering the cost of taxes is a recipe for failure. Once you have determined how many employees you will need and their pay, see an accountant to get an estimate of the amount of tax you will pay, how often you will have to make tax deposits, and the cost of preparing your quarterly and annual returns. These figures often come as a surprise to new business owners. It is better to be surprised in the planning stage, as opposed to the operational stage.

    The next most common oversight is business insurance. In some industries, insurance is required by law. But any business has risks that can be offset by purchasing insurance. Our Small Business Practice Group can meet with you to assess the risks facing your business, and the best ways to protect you both personally and professionally.

    Even if a bank or investor never sees your business plan, the process of creating it is critical to building your business in such a way that it is profitable, and compliant with the law. Most entrepreneurs wonder what they would write at all. But after jotting down those four sentences noted above, it does not take long for the pages to fill up with ideas and questions.

    Give us a call at the Lavelle Law, Ltd. Small Business Practice Group. We would be happy to review your business plan, no matter how informal it is, to help you get a handle on the risks and concerns associated with your small business, and the steps you can take to protect all the hard work you’ve put into designing and building it. We look forward to working with you to protect and grow your business.

    If you have any questions regarding this article please feel free to contact Jim Voigt at jvogit@lavellelaw.com.

Estate Planning

HOW TO DISPOSE OF YOUR TANGIBLE PERSONAL PROPERTY UPON YOUR DEATH
By Lauren E. Schaaf

    If you are like most Americans you are currently parking your car outside your garage because the garage is too full of crap to park your car in it. Beyond how to get your garage cleaned out, another major consideration you should be making is what will happen to this stuff after I die? Do you really want to leave the mess to your family or friends to sort out, or would you rather provide them with some guidance as to what to do with all your stuff?

    One option is to make specific bequests of items to specific persons. This option requires you to prepare a list of items and then match the list of items with deserving individuals. There are two ways to do this. One way is to include a specific bequest provision in your will or trust. This is advantageous because there are no extraneous writings that may be lost or destroyed. The disadvantage to this is the need to execute a new will or trust each time you decide to make a change. Additionally, if you have a will instead of a trust, your specific bequests become a matter of public record, opening them up to public scrutiny once the probate estate is opened.

    Another way to make a specific bequest is to incorporate by reference a letter making your specific bequests into your will or trust. The advantage of this is the flexibility it gives you to assign specific items as you make the decision to make the bequests. The disadvantage is the danger of you making rash, emotional changes to the bequests because you are not forced to sit down with your attorney and change your formal document.

    A second option is to make a class bequest. This means you would give all your tangible personal property to a class of people such as your children or grandchildren, to be divided among them as they agree. A disadvantage of this method is that your class members are not distinguished from each other and none of the members’ special needs, ages or maturity levels are taken into consideration. The advantage is that the bequest is simple to make and doesn’t take much aforethought.

    A third option is to make a directed sales bequest. This means you require the sale of all your tangible personal property and direct the executor or trustee to divide the net proceeds to your beneficiaries. The disadvantage of this method is that none of your beneficiaries are able to retain your personal property items without actually purchasing them from your estate. It also adds a burden to your executor or trustee as to how he or she shall go about selling off your property. Will he or she have an estate sale, a public auction or a private auction? Then, the executor or trustee will have to deal with how to inventory, value and store all your personal property in order to conduct these sales.

    Regardless of how you decide to distribute your tangible personal property, it cannot stay in your garage forever. It will go somewhere upon your death. The question is how difficult are you going to make it for your heirs to distribute? The more planning you do now, the easier things will be for the people you leave behind once you are gone. If you need help planning the distribution of your assets upon your death contact me at lschaaf@lavellelaw.com.

Bankruptcy

MAY 2007 CASE HELPS DEBTORS IN BANKRUPTCY
By Timothy M. Hughes

    In a bankruptcy case decided on May 4, 2007, an Illinois Bankruptcy Judge found that Chapter 13 Debtors did not have to make planned payments for five years and accordingly the Debtor’s three-year plan was confirmed. The issue for the Court was whether unsecured creditors could receive more than they were entitled in a shorter period case.

    Under the new bankruptcy law if the debtors’ income is over the median income for their state for the size of their household the debtors proposed plan “must” be for a five-year commitment period. However, in the recent Illinois case Debtors’ disposable income was negative therefore Debtors proposed a three year plan that would pay their unsecured creditors ten cents on the dollar (10%) during a three year period.

    The Chapter 13 Trustee objected to the Debtors’ plan asserting that because their income was over the sate median that they must make plan payments for sixty months (five years) and not the proposed thirty-six months (three year) plan.

    The Debtors were able to convince the Judge that the five year commitment period is used as a multiplier of their disposable income (in their case zero) to determine how much they would have to pay in, to the plan under that provision of the bankruptcy code. Other bankruptcy code requirements led the Debtors to propose a 10% dividend to general unsecured creditors, which was approved by the Court. The Trustee did not challenge the 10% dividend but only challenged the thirty-six month plan length compared to a perceived mandate for keeping the case open sixty months.

    The Court also did not find merit in the Chapter 13 Trustee’s argument that any plan paid shorter than the applicable thirty-six or sixty-month commitment period must provide a 100% dividend to general unsecured creditors. The Court found this argument to be unsupported by the Bankruptcy code or the intent of congress. The Court found that such a reading would hold Debtors hostage in Bankruptcy when they can meet the requirements of the Bankruptcy code in a shorter period.

    If you have any questions regarding specifics on personal bankruptcy, please do not hesitate to contact me at thughes@lavellelaw.com.

Health Care

THE HEALTH INSURANCE PROBLEM FOR SMALL BUSINESS OWNERS
By Theodore M. McGinn

    Starting out a business can often pose many stressful situations that are not otherwise presented when working with a traditional employer. In addition to the day-to-day business decisions, the ever competitive environment, concerns over scarce resources, one of the largest stumbling blocks in starting your own business is dealing with the health insurance needs. A benefit with the large employer are the health insurance benefits typically provided. When operating on your own, obtaining health insurance is costly. But because it is necessary, many budding entrepreneurs simply stay with larger employers rather than start their own business.

    About 65 million Americans have no insurance, and most of those Americans are families where one of the spouses are involved with a small business. Most businesses with ten or fewer employees do not offer health insurance. The simple fact is that many businesses cannot afford the costs.

    One attractive option that is getting more popular are insurance plans with high deductibles. Some insurance providers will offer plans with deductibles ranging from $1,000 on up to $5,000. These plans have lower premiums making them more affordable. They also encourage employees to adopt healthy lifestyles.

    Another option is the health savings account. On such a plan, employees can use the savings account to pay out of pocket costs incurred with high deductible health insurance plans. The funds are funded with tax-deductible payments, and employees can carry them forward from one year to the next. Furthermore, employees can transfer such plans to other employers.

    Another option is flexible spending accounts. These are employer-based plans that permit employees to allocate payments from various medical expenses on a pretax basis. Employees decide in advance how they want to set aside their money in their accounts. However, they forfeit any unspent funds at the end of the year.

    Finally, another option is health reimbursement arrangement. Employer accounts are established to reimburse employees qualified medical expenses. This is a common way to offset high deductibles. Employers are not required to fund the accounts until the expenses are incurred. And any unused funds remain with the employer.

    Health insurance is a significant issue that all entrepreneurs must address. The entrepreneur must be able to provide insurance not only for themselves, but provide options for their employees. As any entrepreneur knows, attracting and keeping valuable employees is very important to the success of any business. Without a plan to provide such benefits, embarking upon a business venture will prove difficult.

    If you have any questions regarding this article, please contact Ted McGinn at tmcginn@lavellelaw.com.
 

Federal Taxation

NO NEW PRIVATE DEBT COLLECTION CONTRACTS
By Kerry M. Lavelle
   

    The IRS was granted authority to institute a private collection action program in 2004 under I.R.C. § 6306. The IRS had three collection firms under contract from September 2006 to March 2007, however, only two of those contracts have been extended, and the cases pending before the third contractor have been recalled. Commissioner Everson has previously testified before Congress that the use of private collection companies is more costly than using trained IRS professionals.

    Due to numerous taxpayer complaints, the House Ways and Means Committee Chairman, Charles B. Rangel has urged the IRS not to award any new private tax collection contracts this year. Chairman Rangel made this request by way of a letter to Everson, and also announced a Committee investigation into the overall use of private companies to collect federal income tax debts. The IRS would not comment on Chairman Rangel’s letter.

    If you have any questions regarding this article, please feel free to contact Kerry Lavelle at klavelle@lavellelaw.com.
 

For past e-newsletter articles of interest, please visit the Lavelle Law, Ltd. website at:   http://www.lavellelaw.com/newsletters/newsletter.htm.

 

This newsletter is a publication of Lavelle Law, Ltd. We attempt to highlight and discuss areas of general legal interest that may lead to planning opportunities. Nothing contained in this Newsletter should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein.