On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) which extended, or made permanent, a number of popular tax provisions.  For individuals, deductions or credits extended include:

• State and Local Sales Tax Deduction - the election to claim an itemized sales tax deduction , instead of an income tax deduction, has been made permanent starting with  2015 tax returns
• American Opportunity Tax Credit - this education credit, which was set to expire after 2017, has been made permanent
• Charitable Distributions from IRA's - the provision allowing individuals age 70 1/2 and older to make certain tax-free distributions from IRA's  to qualified charities has been made permanent
• Teachers' Deduction - also made permanent is the deduction for elementary and secondary school teachers' out-of-pocket classroom expenses.  The $250 ceiling on this deduction is indexed to inflation starting in 2016 and, also beginning in 2016, certain professional development expenses are eligible for the deduction
  
• Tuition/Related Expenses Deduction -  the deduction for qualified tuition and fees for post-secondary education has been extended for 2015 and 2016 tax returns
  
• Mortgage Insurance Premium Deduction - likewise, the deduction for mortgage insurance premiums treated as qualified residence interest is extended through 2016
  
• Residential Energy Property Credit - the energy credit for certain energy improvements such as insulation, energy efficient windows and heating and air conditioning systems has been extended through 2016
  For businesses, popular deductions or credits extended include:
  
• Section 179 expensing - the expensing  limit and phase-out amount, which had been scheduled in 2015 to revert to $25,000 and $200,000 respectively, have been permanently  extended at their 2014 levels of $500,000 and $2,000,000, and have been indexed to inflation starting in 2016
  
• Recognition Period for S Corporation Gain - the Act makes permanent the five-year recognition period for built-in gain following conversion from a C to an S corporation
  
• Bonus Depreciation- bonus depreciation has been extended through 2019 on the following schedule: 50% for 2015-2017, 40% for 2018, and 30% for 2019
  

For more information, or for information on other deductions and credits affected by the PATH Act, please call our office.
 

An Illinois First District case, McInnis v. OAG Motorcycle Ventures, Inc, 2015 IL App (1st)1142644, sheds light on the applicability of restrictive covenants on rehired employees.

Chris McInnis (“McInnis”) began employment with OAG Motorcycle Ventures, Inc., d/b/a city limits Harley-Davidson (“OAG”) in Palatine, Illinois, as a salesman in August 2009.  OAG was one of four Harley-Davidson dealerships which comprise the Windy City American Motor Group (“WCAMG”).  

McInnis became a top salesman before leaving OAG in October 2012 in favor of employment at Vroom Vroom, LLC, d/b/a Woodstock Harley Davidson (“Vroom”). McInnis worked at Vroom for a single day, after which he contacted OAG to request his previous job.

 

OAG agreed to re-hire McInnis on the condition that he sign a confidentiality agreement, which he signed on October 25, 2012.  The noncompetition clauses of the agreement, in part, prohibitedMcInnis from being employed by or performing work for another Harley dealership within a 25 mile radius of OAG during and for 18 months subsequent to employment, and from influencing any person or business from terminating or diminishing any existing relationship with OAG or WCAMG.

 

The consideration set forth in the confidentiality agreement was “an offer of employment with Company in an at-will employment relationship, and Employee’s exposure to Company’s and/or WCAMG’s proprietary and confidential information as its employee.”

 

McInnis was re-hired, and OAG waived the 90-day trial period that was standard for new employees before becoming eligible for benefits.

 

During his employment with OAG, McInnis had access to OAG’s customer information (names, telephone numbers, and e-mail addresses), and retained 179 names, telephone numbers, and e-mails of clients in his cell phone.

 

In May 2014, McInnis again voluntarily resigned from OAG to work for Vroom.  McInnissubsequently filed a declaratory complaint claiming the noncompetition provisions of the confidentiality agreement he signed with OAG were unenforceable due to inadequate consideration for same.  OAG filed a counterclaim against McInnis, as well as a third-party claim against Vroom, alleging, in part, that the client data retained by McInnis was confidential information.

 

The trial court denied OAG’s motion for preliminary injunction and granted Plaintiff’s motion for declaratory judgment, finding that Harley customers are typically brand-loyal, regardless of where the product is purchased.  The court also determined that the restrictive covenants imposed by the confidentiality agreement were unenforceable, citing Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, in which the court set the guideline that continuous employment for two or more years is sufficient consideration to support restrictive covenants.  In this case, McInnis was only employed by OAG for approximately eighteen (18) months; therefore, the court stated it was necessary to prove additional consideration “such as added bonus in exchange for this restrictive covenant, more sick days, some incentives, some kind of newfangled compensation” was given.  OAG asserted that its waiver of the 90-day trial period constituted additional consideration, but the court disagreed, finding that a trial period was not necessary, as McInnis had previously established himself within the company as a successful salesman.          

 

OAG appealed, arguing that the trial court erred in misinterpreting Fifield by failing to utilize afact-specific approach to the unique situation.  The First District Appellate Court disagreed, noting that in Fifield, length of employment was the only factor the court had to consider, where in this case, the trial court contemplated factors beyond the two-year employment guideline to determine if additional consideration had been given, and found none.  Because no additional consideration was given, the appellate court agreed that the restrictive covenants were unenforceable, and affirmed the trial court’s ruling.

 

The decision in this case maintained the benchmark set forth in Fifield that two years of continuous employment is necessary for employment to be adequate as the sole consideration for the imposition of restrictive covenants.  However, the court stipulated that some form of consideration in addition to employment could serve to negate the two-year requirement, but did not quantify the additional consideration requisite to do so.  The case serves as guidance to employers who are rehiring former employees and attempting to impose restrictive covenants on them.

Authors:  Brian F. Johnson is a shareholder at Johnson, Bunce & Noble, P.C.  He focuses is practice in the areas of business and real estate.  Darcie E. Curto is a paralegal in the firm and contributed greatly in the preparation of this article.    

   

A non-compete agreement, also known as a covenant not to compete, is a contract (usually between an employer and employee) where the employee agrees not to compete with the employer – typically in a certain industry, for a set amount of time and in a particular geographical area.

The nature of today’s transient workforce has caused many employers to include restrictive covenants in their employment contracts, such as non-compete agreements. A non-compete agreement seeks to protect the employer from an employee taking advantage of company resources, training, goodwill, trade secrets, and other assets, and using it to compete with that company. Historically, Illinois courts would enforce a non-compete agreement only if the employer was able to establish that the agreement was no broader than necessary to protect a legitimate business interest – which was defined as either confidential information or near-permanent relationships. This criteria made it difficult for employers to enforce their non-compete agreements, especially those in highly competitive and diluted sales markets.

In 2011, the Illinois Supreme Court issued landmark decision in the Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871 (Slip. Op. Dec. 1, 2011) case. The Reliable Fire case drastically changed the criteria from a strict test to a “reasonableness” standard, which considers the unique circumstances of each case. In weighing reasonableness, the court may consider various factors, including whether the non-compete agreement (1) is no greater than required to protect a legitimate business interest of the employer, (2) does not impose an undue hardship on the employee, (3) and does not injure the public (such as causing a general restraint on someone working in their given trade). The legitimate business interest definition was expanded into a “totality of the circumstances” test including non-conclusive factors, such as the near permanence of customer relationships, time and place restrictions, and the particular employee’s acquisition of confidential information from the employer.

Some Illinois appellate courts are also requiring adequate consideration for the non-compete agreement to be enforceable. Either two-years employment or some additional form of compensation for the non-compete agreement is sufficient in those jurisdictions.

If you have a non-compete agreement and are considering leaving your job, it is highly advised to speak with your attorney. Many employers aggressively enforce their non-compete agreements. If you are an employer, it is critical to draft an effective and enforceable non-compete agreement to protect your business. A short meeting may save you a lot of money and headaches in the future, no matter which side of the table you sit on.

Every business, from the one-person shop to the international corporation needs to involve legal counsel at every stage of the business lifespan.  The old adage is true, “an ounce of prevention is worth a pound of cure.” 

Forming the Business

The law firm, along with other key players (accountant, financial planner, etc.) plays a vital role in educating a potential business owner about the various entities available.  Among these are corporations, limited liability companies, partnerships, and sole proprietorships.  Knowing the liability protection (or lack thereof) and tax ramifications at this stage can pay off in the future as the business grows.

Opening For Business

Properly structuring the timeline for opening a business is vital to efficient use the start-up funds.  An attorney will help in this process.

Leasing and/or Buying Real Estate

Almost every business needs physical office or work space.  The decision to lease vs. buy as well as properly handing the transaction is key to maximizing business funds and tax savings.  A good business attorney will advise accordingly.

Hiring, Managing, and Terminating Employees

Almost every employer will tell you that handling personnel matters is the least enjoyable part of the job and the most risky in terms of litigation.  Knowing the employment process, about employment contracts, employee handbooks, and the termination process is vital.  Using a knowledgeable attorney at this stage may prevent larger problems.

Business Records

Many times, business owners are unaware of the consequences of the failure to properly maintain their records, including a corporate minute book.  It takes a knowledgeable attorney to properly draft these documents, including the minutes (and no, accountants should not be doing this for you).  

Day-to-Day Matters

Matters come up constantly that the business owner may have never experienced before or may need guidance on.  Among these are: contract reviews and modifications, collections of accounts receivable, and licensing issues.

Succession Planning/Dissolution

Properly planning for the succession or dissolution of a business, well in advance, can provide certainty and peace of mind. 

Author: Brian F. Johnson (bjohnson@peorialawyers.com)

Nothing in this article should be relied upon as legal advice.  Please consult an attorney for advice tailored to your specific factual situation.

One of the most overlooked parts of the estate planning process is ensuring that accounts or insurance policies have the proper beneficiary designations.  A beneficiary designation means that after one’s death, money in an account or from an insurance policy will be distributed directly to someone (the “beneficiary”) listed on the account.        

Checking beneficiary designations is important because the money from that account or insurance policy will go directly to that beneficiary (outside of the probate process regardless of what a validly executed Last Will and Testament states). 

There are a few common examples that show how beneficiary designations can drastically change one’s estate plan.

Example 1: Predeceased child

Al was married to Kathy, but Kathy passed away before Al.  They had two children during their marriage, Bob and Bill.  Bob and Bill each get married and they have one child each.  Bob passes away before Al, surviving are his spouse and child.  Then Al dies. 

After Kathy’s death, Al obtained a life insurance policy for $250,000.  The beneficiary designation on his policy is: “To my children”. 

Although it was probably Al’s intent that should either of his two children pass away before him, that the proceeds be split equally between his surviving son and his deceased son’s child, the likely outcome will be that Bill receives the total $250,000 to the exclusion of Bob’s child. 

The beneficiary designation only read “To my children” and many life insurance companies will interpret this phrase to mean to the children only if they are living.  If one child has died, then the surviving child will receive the proceeds.

This unintended result could have been avoided if the beneficiary designation was properly drafted.  Please be aware that most life insurance companies have different rules for how to word the designation.  Thus, it is important to contact the company on a case-by-case basis to determine the proper wording in your case.

Example 2: Ex-spouse windfall

John and Mary are married.  They had three children during their marriage.  John and Mary later get a divorce.  During the marriage, Mary obtained a life insurance policy.  When she purchased the life insurance, she named John as the primary beneficiary. After the divorce, Mary had her Last Will and Testament changed to leave everything to her children and specifically excluded John from receiving anything from her estate.  Mary then dies, surviving are John and the three children. 

Although Mary’s Last Will and Testament excluded John, he was still the primary beneficiary under the insurance policy.  Therefore, John will receive the life insurance benefits if he applies to receive it. 

This counterintuitive result can be understood due to the fact that a life insurance policy is a mere contract between the insurance company and the insured.  According to the contract, John was the beneficiary and the insurance company is bound to make the benefit check payable to him. 

This same example can relate beyond the common ex-spouse example to other situations as well: jointly owned real estate, living trusts, testamentary trusts, estate tax planning, payable on death, transfer on death, etc.

The prudent way to cure these unintentional results is to check the beneficiary designations on your accounts and insurance policies.  Checking beneficiary designations is an ongoing process.  When a new account is opened or a new insurance policy is purchased, it is recommended that you contact your attorney at JBN to discuss how to best title the account and list the beneficiary designations.

Author: Brian F. Johnson (bjohnson@peorialawyers.com)

Nothing in this article should be relied upon as legal advice.  Please consult an attorney for advice tailored to your specific factual situation.

The last thing families with young children want to think about is estate planning.  However, if there were ever a time that estate planning was important, it is right after a family has their first child. 

For example, let’s assume Jon and Jane have their first child, Junior.  Before Junior was born, if Jon or Jane died without a will, a document that controls property after a person passes away, the surviving spouse would get all the property.  This is the expected and probably favorable result.  However, after Junior was born, if one of the spouses passed away without a will, the deceased spouse’s solely-owned property would generally be split between the surviving spouse and the surviving child.  Thus, without a will, Jane and Junior, a newborn, would share the property equally.  Initially this doesn’t seem to be a problem.  However, for instance, if Jane wants to sell the home which had been in Jon’s name, a guardian would need to be appointed for Junior.  This process could end up potentially costing thousands of dollars.

Most importantly, young parents should be aware of the guardian-nominating provision.  If both parents were to unexpectedly pass away, the guardian nominated will be given preference over other people.  Thus, the time and cost it takes to get a guardian appointed would be shortened and lessened.  

Proper estate planning includes not only a will, but also powers of attorney and living wills.

A power of attorney is a document that appoints another person (called the “agent”) to make decisions for an individual (called the “principal”).  A living will gives general directions to treating physicians with respect to death delaying treatment.   Most think that powers of attorney and living wills are only needed by the elderly.  However, there are countless situations where if young families had a power of attorney, their situation would have been easier.  For example, one need not look much past the Terri Schiavo situation several months ago to see how a power of attorney or living will would have made her situation easier.  When a spouse acts as the agent, the entire process is simplified in that the well spouse need not be appointed guardian.

In Illinois, there are two types of powers of attorney—property and health care.  The definitions are obvious, one gives an agent the power to make decisions for the principal regarding property and finances.  The other gives an agent the power to make health care decisions. 

Careful attention and consideration should be paid when determining who the agent should be.  Of course, many young families choose their spouse.  However, as time goes on, the documents can always be redrafted to appoint a child. 

Estate planning is sometimes called “preventative planning.”  Getting everything in order now can spare thousands of dollars in court costs and attorneys’ fees.   

Author: Brian F. Johnson (bjohnson@peorialawyers.com)

Few decisions are more difficult than the one to place a spouse or parent in a nursing home. Because nursing homes are seen as a last resort, the decision is generally overlaid by a sense of guilt. Most families try to care for loved ones at home for as long as (or longer than) possible, only accepting the inevitable when no other alternative is available. 

The difficulty of making the decision can be compounded when family members disagree on whether the step is necessary. This is true whether the person disagreeing is the person who needs help, his or her spouse, or a child.

The placement decision can be less difficult if, to the extent possible, all family members are part of the process, including the senior in question, and if everyone is comfortable that all other options have been explored. This will not ensure unanimity in the decision, but it should help. Consider taking following steps: 

Include all family members in the decision. Let them know what is happening to the person who needs care and what providing that care involves. If possible, have family meetings, whether with the family alone or with medical and social work staff where available. If you cannot meet together, or in between meetings, use the telephone, the mail, or the Internet. 

Research other options. Find out what care can be provided at home, what kind of day care options are available outside of the home, and whether local agencies provide respite care to give the family care providers a much needed rest. Also, look into other residential care options, such as assisted living and congregate care facilities. Local agencies, geriatric care managers, and elder law attorneys can help answer these questions. 

Follow the steps for finding the best nursing home placement available. If you and other family members know you've done your homework, the guilt factor can be assuaged (at least to some extent).  

Where necessary, hire a geriatric care manager to help in this process. While hospitals and public agencies have social workers to help out, they are often stretched too thin to provide the level of assistance you need. In addition, they can have dual loyalties, to the hospital that wants a patient moved as well as to the patient. A social worker or nurse working as a private geriatric care manager can assist in finding a nursing home, investigating alternatives either at home or in another residential facility, in evaluating the senior to determine the necessary level of care, and in communicating with family members to facilitate the decision.

To find a geriatric care manager in your area, visit the Web site of the National Association of Professional Geriatric Care Managers at:  www.caremanager.org. 

Author: Susan Dawson-Tibbits (susan@peorialawyers.com)