Kutchins Robbins & Diamond: CPA and CFP, Chicago, IL- Newsletter

Most people today take fire sprinkler protection for granted and David Lyon and a group of employees. feel safe from the hazards of fire in movie theatres, high‑rise buildings, hotels, retail stores, warehouses and factories because they know that these establishments usually are equipped with automatic sprinklers. But that wasn't always the case.

Following fires with large losses of life, such as the Coconut Grove Nightclub fire in Boston in 1942 where 492 people lost their lives, fire and building officials searched for a means to provide life safety for building occupants. They found that factories and other buildings equipped with automatic sprinklers had an amazingly good life safety record compared with similar unsprinklered buildings. Today, companies like Wheeling‑based Fire Control, Inc. continue to design, manufacture and install fire sprinkler systems to provide life safety.

"Aside from fire fighting and explosion fatalities, there has never been a multiple loss of life in a fully sprinklered building due to fire or smoke," points out David Lyon, vice president of Fire Control, Inc. Started in 1971 by David's father, Tom Lyon, and Bob Duke (president), the company now has upwards of 40 employees and grossed about $5 million in sales in 1999. "Right now business is booming," says the thirty something executive. "Our business is cyclical. When the economy is strong and new construction is on the upswing, we do well."

Operating out of a modem 15,000‑sq.‑ft. building, Fire Control, Inc. has provided fire sprinkler systems for Regal Cinema, Cineplex Odion theatres, Extended Stay Hotels, Walgreen Drug Stores, Office Depot, Home Depot, Target, Northern Builders, Northwestern University, and many others. The company handles jobs ranging in size from installing one or two sprinkler heads in a remodeled office to completely outfitting a 400,000‑sq.‑ft. warehouse with as many as 4,000 sprinklers. Each job is a team effort, with everyone involved doing their part so that the final installation goes smoothly. David says, "Once we have a job, we take the plans to our engineering department. From there, the head engineer and salesman determine a general scheme of how the system should be designed. When it is approved, the piping is fabricated in our shop and delivered to the job site where it is installed.

Interestingly, company employees have been learning about the latest developments in the fire sprinkler industry through a series of on‑line seminars offered by the National Fire Sprinkler Association, according to David, who gives the seminars high marks for content and convenience.

Smoke, a by‑product of fire, is generally the cause of death to building occupants. Although smoke is produced as sprinklers extinguish a fire, such quantities of smoke are much less than those which would be produced by an unsprinklered fire permitted to grow, "There are so many fewer lives lost to fire today because of fire sprinklers," says David, who obtained a master's degree in science from Northwestern University in 1986 and an MBA from Kellogg Graduate School of Management in 1993. He began working full time in the company in 1987.

Invented in 1874, automatic fire sprinklers are individually heat‑activated and tied into a network of piping with water under pressure. When the heat of a fire raises the sprinkler temperature to its operating point, a solder link will melt or a liquid‑filled glass bulb will shatter to open that single sprinkler, releasing water directly over the source of heat. Sprinklers are so effective because they operate automatically in the area of fire origin, preventing a fire from growing undetected to a dangerous size, while simultaneously sounding an alarm. They do not rely upon human factors such as familiarity with escape routes or emergency assistance.

Pointing out ways the company can improve profit margins and operate more efficiently is Fire Control's accountant, Allen Kutchins. "Allen brings a unique perspective to the table because he works with so many different types of businesses," says David. "We are sometimes so focused on our own company that it is difficult to step back and look at things objectively. We appreciate the suggestions Allen makes and we implement those that we believe will work for us. We have turned to him for guidance on competitive compensation for employees and for suggestions on how to improve profit margins to brings costs down." Allen and the firm also assisted Fire Control, Inc. with implementing an Employee Stock Ownership Plan (ESOP).

"He does a lot more than just number crunching‑Allen is a valuable asset in terms of providing us with general business advice including tax planning recommendations," adds David.

As for the future, David says he and his partner want to maintain the level of business they have enjoyed for the past three decades. "We have more business than we can handle, with the economy still in a period of growth and expansion.

On a personal note, David admits he sometimes is reluctant to talk too much about his business to people he meets at parties and in social situations, fearing they might find an in‑depth discussion about installing pipes and sprinkler heads boring. From now on, however, he promises that he will tell people he meets at cocktail parties that he is in the business of saving lives. And there's nothing boring about that!

Estate Planning Techniques You Can Use

he total value of your estate may be more than you think when you add up all your cash, investments, realty, personal property, retirement benefits, insurance and intra‑family loans. If your estate is worth more than $675,000 (fair market value at time of death), it may be subject to federal estate tax at a rate as high as 60 percent. Take life insurance, for instance. While a $1 million policy is excludable from income taxes, it is not excludable from estate taxes unless the policy has been properly removed from the estate.

Without proper planning, a taxpayer can end up paying more in estate taxes at time of death than the total amount of income taxes paid over a lifetime of earnings. Federal and state death taxes generally apply to estates that exceed what is known as the unified credit equivalent amount. This lifetime credit amount is currently $675,000 and is scheduled to increase to $I million by 2006.

A primary reason why people are not overly concerned about estate taxes is because they believe their estates are not significant in value. But that is often not the case. Another common error occurs when a decedent leaves everything to his or her spouse under joint tenancy and survivorship rules. While this approach eliminates any tax owed on the first spouse's death, the property will eventually be taxed upon the second spouse's death. In other words, joint tenancy ownership provides for estate tax deferral, not estate tax minimization. To avoid

property being automatically passed under unlimited marital deduction rules, it may be more prudent to hold ownership in tenancy in common. Under this form of ownership, each tenant owns a specified percent of the entire property together and upon death, the tenant's interest passes directly to his or her heirs.

To help you preserve more of your accumulated wealth and reduce estate taxes, consider the following estate planning strategies. If you have questions about any of these techniques, please call our office. We will be happy to provide you with additional infonnation or discuss these concepts in more detail:

Making Lifetime Gifts‑Making major gifts to children, grandchildren and other heirs can result in a transfer of assets that can help minimize your estate tax exposure. You may give up to $10,000 per year ($20,000, if your spouse joins in the gift) to any number of family members or other recipients without paying federal gift taxes. Such gifts generally remove the transferred assets from your taxable estate.

Paying Tuition and Medical Bills‑Many people are not aware that a donor can pay medical or tuition expenses of a donee, without limit, and the amounts will be excluded for purposes of the gift tax. Payments must be made directly to the school, hospital or medical provider, however. If paid to the beneficiary, amounts do not qualify for the unlimited deduction.

Trust Planning~Use of an AB Trust involves: (1) Placing the unified credit exemption amount into a credit shelter (bypass) trust benefiting the surviving spouse and (2) placing the balance of the gross estate into a marital trust that also benefits the surviving spouse. The benefit of such an arrangement is that the first spouse is able to use his or her unified credit equivalent, which would otherwise be lost due to the unlimited marital deduction, as‑well ‑as maintain control over the ultimate distribution of trust assets.

Valuation Discounting‑Through use of such legal entities as a family limited partnership or limited liability company, a person can reduce the value of his or her assets for estate tax purposes by as much as 15% to 40%. Such discounts are commonly allowed by the IRS due to the limited marketability of the entity and the minority interest of the existing shareholders. In case of a family limited partnership, assets are donated to the entity, whereby the donor(s) maintain a small General Partnership interest and distribute a majority of the partnership value to family members through Limited partnership interests. The benefit of retaining a General Partnership interest is that the donor(s) can maintain operating control over the assets while effectively reducing their estate.

Charitable Planning‑Aside from the charitable benefits, establishing a charitable trust or private foundation can help shelter highly appreciated assets and income taxes, while still providing investment income for family members. A private foundation provides for the greatest degree of control and perpetuity. Specifically, it is a type of private nongovernmental, nonprofit organization having an asset fund that is managed by its own trustees and directors who are usually made up of family members and who can be reasonably compensated for their management efforts. Its purpose is to maintain or aid charitable, educational, religious or other activities serving the public good.

In conclusion, estate planning is probably the most important step you can take to protect your family and preserve your assets. Plan ahead so that your beneficiaries, not the government, will receive your assets. Again, contact us for help in implementing any of the strategies discussed. )

Written by:

This article was written by Scott Coleman, a principal member and co‑founder of KRD Financial Advisory Services, LLC He is a state licensed certified public accountant, an attorney and a CERTIFIED FINANCIAL PLANNER™ Professional.

In response to a recent OSHA advisory concluding that companies that let employees work at home are responsible for federal health and safety violations in home workspaces, Labor Secretary Alexis Herman declared she intends to open "a national dialogue to determine what the rules and policies should be" regarding telecommuting and home workspaces. In November, OSHA issued a letter answering questions posed by a Texas‑based credit services company planning to have some of its sales executives work at home. The letter stated that "Ensuring safe and healthful working conditions for the employee should be a precondition for any home‑based work assignments." OSHA indicated that the agency was unlikely to inspect home offices, but did say that employers ‑~vcre responsible for "reasonable diligence to identify in advance the possible hazards" in home workplaces. Amid complaints from business groups and others, Herman declared that more dialogue is needed on the subject.

The policy applies specifically to home work areas and not the entire home. Merrill Lynch, it is reported, has had an occupational safety program in place for four years to cover its employees who work from home. It is estimated that nearly 20 million American workers regularly work at home at least one day per month, up from 4 million in 1990. Note that if the business use of your home office is for the convenience of your employer, you may be able to deduct home office expenses.

The 2000 Social Security wage base rises to $76,200, up from $72,600 in 1999. The FICA rate (combined Social Security rate

You can claim a child tax credit of $500 (up from $400 in 1998) for each qualifying child who was under the age of 17 at the close of 1999. A qualifying child is a son or daughter (by blood or legal adoption), a step child or an eligible foster child. The credit begins to phase out at an AGI of $110,000 for married taxpayers filing jointly, $75,000 for unmarried taxpayers and $55,000 for married couples filing separately.

The standard exemption allowance for the 1999 IL‑ 1040 individual income tax taxpayer and those claimed as dependents on another person's return increases from $1,300 to $1,650. The additional exemption allowance for those 65 years of age or older or legally blind remains at $1,000 for both the taxpayer and his or her spouse.

Just a reminder that capital gains on the sale of securities held longer than 12 months are taxed at a maximum rate of 20% (10% for those in the lowest bracket). Capital gains on the sale of securities held for 12 months or less are taxed at ordinary income rates. The maximum capital gains rates for qualifying assets held more than five years are lowered to 18% and 8%, for taxable years beginning after December 31, 2000.) of 6.2% and Medicare tax rate of 1.45%) remains at 7.65% for 2000. The self employed tax rate remains at 15.3% (combined 12.4% and 2.9%).

There are also higher Social Security earnings limits in 2000. The maximum amount beneficiaries ages 65 through 69 can earn without losing benefits is $17,000, up from $15,500 in 1999. For each $3 over that amount, benefits drop $1. Those below age 65 may earn $10,080, up from $9,600. For each $2 earned above that limit, $1 in benefits is lost. Non‑wage income such as earnings from investments or pensions are not counted in these limitations. After age 70, there are no earnings limits.

A new General Accounting Office study shows that IRS seizures of property in delinquent tax cases fell from about 10,000 a year from 1990 through 1997 to just 200 in 1999. The study was requested by Senate Finance Committee Chairman William Roth, author of a 1998 law that ordered IRS reform and stressed service rather than punishment in collection of taxes. Prior to the new law, the IRS was governed by a heavy handed system of "goals, quotas and statistics to conduct and even inflate audits," Roth has said. Val Oveson, the nation's taxpayer advocate chosen by the IRS commissioner, listed as some of the most serious problems tax law imposes on taxpayers the sheer complexity of the law, rules on taxability of Social Security benefits and the alternative minimum tax. In fact, Oveson recommends phasing out the AMT, which continues to ensnare more middle‑class taxpayers even though it was designed to ensure the rich don't escape taxes. Other chronic problems include unclear IRS notices and letters and inconsistent application of penalties.

As the clock began to strike midnight on New Year's Eve, did you promise to lose weight, stop smoking or spend less money? Don't feel bad if you haven't kept any of those resolutions. You are not alone. According to James Prochaska, John Norcross and Carlo Didemente authors of Changing for Good, about 23% of resolutions are broken within one week and 45% are broken within one month. The book outlines a long‑term plan with stages for change:

Pre‑contemplation. Research the benefits of change to convince yourself it's worth it.

Contemplation. Think through the pluses and minuses. Visualize the benefits. Don't believe in a quick fix.

Preparation. Set a date for taking action. Develop a specific plan and write it down. Go public, telling friends.

Maintenance. Expect to slip sometimes. Use meditation, exercise or prayer when stress revives old patterns.