A Matter of Trust

CTA Preliminary Injuction

Tue, 03 Dec 2024 22:29:55 GMT

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction against the enforcement of the Corporate Transparency Act (“CTA”) nationwide due to the CTA being “likely unconstitutional as outside Congress’s power.” The CTA requires registered business entities to file Beneficial Ownership information to the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. Pending future court orders, reporting companies need not comply with meeting the January 1, 2025, reporting deadline nor comply with any other aspect of the CTA.

The ruling is unlikely to be the last word of the CTA’s enforceability. The decision is a preliminary injunction onlyand not a final decision, which allows for the court to revisit it in the future. The court ruled that the CTA is only likely to be unconstitutional, but did not rule on whether it truly is unconstitutional. Depending on how the court decides going forward, reporting companies may need to file for the CTA at a later point in time. Until a federal court provides further guidance, companies do not need to report under the CTA or update any previously filed reports.

The CTA applies only if you own interests in a reporting company. A reporting company includes any entity registered with the Wisconsin Department of Financial Institutions or Secretary of State for the state of formation (e.g., Corporation, LLC, LLP). If you have already filed for the CTA, there is nothing you need to do. If you have not filed and were planning to do so before the January 1, 2025, deadline, this ruling permits you to hold off on filing for now.

For questions, please call us at 920-430-1900 .

NAR Settlement and Rule Changes

Fri, 14 Jun 2024 22:29:09 GMT

The National Association of Realtors (“NAR”) is the largest trade organization in the United States, representing 1.5 million realtors. The NAR, which has been in operation for over 115 years, maintains a strong presence in the real estate market through its realtor members, influential lobbying efforts, and its operation of Multiple Listing Services (“MLS”). This level of influence and the NAR’s previous controls on real estate transaction commission fees have been the basis for antitrust lawsuits. Recently, the NAR agreed to a $418 million settlement in which the Association agreed to curtail its oversight of important aspects of the real estate industry.

What is the Issue?

The main issue that has been the subject of litigation against the NAR is the coupling of buyer and seller commissions. One of the first cases in a series of cases filed against the NAR was Moehrl, et. al. v. National Association of Realtors. In Moehrl, the plaintiffs were home sellers whose brokers had used MLSs. An MLS, or Multiple Listing Service, is generally controlled by a local NAR association and allows real estate brokers to list houses for sale and find houses for buyers. To gain access to MLSs real estate brokers must follow the mandatory NAR rules. One of those rules, and the one that is the basis of the lawsuits, requires brokers representing home sellers to post what commission the buyer’s broker would receive.

Plaintiffs argued that this rule amounts to a conspiracy that keeps real estate broker commissions high and violates antitrust laws. Plaintiffs argued the mandatory rule artificially inflated commissions and home prices. That is because listing a home on an MLS, and therefore abiding by the mandatory NAR rules, is essential in the modern real estate market. Without an MLS listing, the home would not be visible to seller agents or listed on popular real estate websites like Zillow or Redfin. The plaintiffs also alleged that buyer agents were more likely to steer their clients away from homes that did not offer at least the standard buyer broker commission rate of 2.5-3%, typically almost half of what commission rate the seller negotiated with their broker. Because of NAR’s mandatory buyer broker compensation rule, plaintiffs argued home sellers were forced to shoulder the cost of artificially high commission rates. The NAR’s mandatory rule left sellers no choice but to instruct their brokers to offer at least the standard rate if they wanted their homes to be sold.

The plaintiffs alleged that this conspiracy kept buyer broker commissions artificially high, which kept total commission rates high. The plaintiffs alleged that, without the buyer broker compensation rule, the commissions for the brokers for the buyer and seller of the property would be decoupled, meaning each broker’s commission would be paid by their respective clients. Through this decoupling, buyers would then be able to negotiate the commissions they pay to their brokers (property sellers already negotiate commissions). Further, the fact that the buyer broker’s commission offer was shielded from the property buyer meant there was a lack of transparency that disincentivized buyer brokers from competing for business through lower commissions or other concessions. The plaintiffs emphasized that this increased competition and negotiation that could result in better fees and service for home buyers and sellers was exactly what the NAR’s rules prevented.

What did the NAR Argue?

In 2023, a jury awarded $1.8 billion in damages to the sellers of more than 260,000 homes in Missouri, Kansas, and Illinois in Burnett v. National Association of Realtors, et. al. The NAR appealed and finally reached a settlement in April of 2024. The NAR initially pushed back, arguing that the buyer broker compensation offer rule, what the NAR calls cooperative compensation, is negotiable and does not mean that money must be paid. The NAR argued the offer can be any amount, even $0. The NAR argued that its policies “promote competition and pro-consumer local broker marketplaces that ensure equity, efficiency, transparency and market-driven pricing options for home buyers and sellers.” The NAR also claimed the cooperative compensation model is good for consumers by bringing more buyers to the real estate market. The NAR emphasized the importance of buyer representation and argued that the cooperative compensation model especially benefited first time home buyers. The NAR argued that by allowing the home seller to pay the commission, first time home buyers had more money to spend on a down payment because they did not have to pay for a buyer broker at the beginning of the transaction. Ultimately, the jury was not convinced and returned a verdict for the defendants.

2024 Settlement

The April 2024 settlement resolved four antitrust class actions against the NAR and other defendants. In lieu of the $1.8 billion judgment, the NAR agreed to pay $418 million and change its rules governing real estate broker compensation. The changes are expected to take effect on August 17 ^th of this year. Some of the most important changes are:

The NAR will eliminate and prohibit any requirement of offers of compensation in the MLS between listing brokers or sellers to buyer brokers or other buyer representatives
The NAR will retain and define “cooperation” for MLS participation.
The NAR will eliminate and prohibit MLS participants, subscribers, and sellers from making any offers of compensation in the MLS to buyer brokers or other buyer representatives.
The NAR will require the MLS to eliminate all broker compensation fields and compensation information in the MLS.
The NAR will require compensation disclosures to sellers, as well as prospective sellers and buyers.
The NAR will require MLS participants working with a buyer to enter into a written agreement with the buyer prior to touring the property.

The lawyers for the plaintiffs believe that this settlement includes extensive real estate industry reforms that “will increase transparency and fairness regarding buyer broker commissions, while eliminating requirements that a seller must offer on multiple listing services to pay the commission of brokers representing the buyers they are negotiating against. The changes contained in the settlement will make it less likely that independent sellers feel powerless to negotiate a better deal for themselves because of the risk that offering lower commissions will cause brokers to steer buyers to other properties.”

What’s Next?

The settlement releases many of the NAR’s members from liability. The settlement covers all brokerages with a NAR member as principal whose residential transaction volume in 2022 was $2 billion or below. Brokerages who are not covered by the settlement can opt in and be released from liability as well.

From an industry standpoint, many professionals and experts believe the settlement and accompanying NAR rule change will have large effects. Under the previous buyer broker compensation offer rule, many prospective property buyers felt as though they were getting the help of the buyer broker for free because the commission came from the seller’s broker. After the settlement, buyer brokers will have to negotiate and enter into written agreements with prospective buyers. Many industry professionals believe this will lead prospective buyers to forgo using a broker, causing some real estate brokers to exit the profession. Some believe that those who exit the profession will be unexperienced real estate agents and brokers, leading to better representation by more experienced agents and brokers.

For those who stay, especially on the buyer’s side, the way they conduct business will likely change. Buyer brokers will modify their business strategies to target what consumers want. Some buyer brokers may focus on consumers who do not want to spend much on a broker but want the basics of representation. Other brokers may occupy the luxury side of the market and charge a higher commission percentage but offer more services in return.

Most industry professionals believe there will be a shift in the typical commission percentage from the previous 5-6% to 2-3%. With the median home price being $420,800, the savings could be over $16,000. There may also be a shift in the way consumers purchase homes. Where they may have gone with a realtor, many industry professionals now believe buyers will instead use various websites, such as Zillow or Redfin, to find and purchase homes.

Many people involved in the real estate industry also do not believe that home sellers will stop paying buyer broker commissions altogether. The MLS rule changes that the NAR agreed to will result in the commission for the buyer broker to no longer be advertised on the MLS. Many real estate professionals believe that home sellers and their brokers will simply advertise the fact that they are willing to pay the buyer broker commission in a different way, such as over the telephone or in the contract. Some home buyers may include the payment of their broker’s commission as a contingency. Real estate and mortgage professionals are also anticipating new laws that would allow a home buyer to include their broker’s commission in the mortgage.

Industry professionals believe it will take some time for the effects of the settlement to really affect the industry. Until August 17 ^th , home buyers and sellers can expect the property transaction to operate as it would before the settlement. In the next few years, home buyers and sellers may notice some significant changes as real estate agents and brokers change their business practices to conform with the new rules.

For more information please contact HDZ at 920-430-1900 .

National Association of Realtors Settlement and Rule Changes

Corporate Transparency Act

Wed, 27 Mar 2024 22:28:13 GMT

IMPORTANT NOTICE – NEW REPORTING REQUIREMENTS

We are reaching out to advise of new reporting requirements implemented pursuant to the Corporate Transparency Act (“CTA”), a federal law which came into effect on January 1, 2024. The CTA expands upon and/or creates an obligation to report certain ownership and financial information of all currently existing and newly created for-profit registered corporate entities, including, but not limited to, corporations, limited liability companies, limited partnerships, limited liability partnerships, and limited liability limited partnerships, (collectively, “Reporting Companies”).

Reporting Companies will need to prepare and file with the United States Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) certain personal and ownership information regarding the Reporting Company, including the following information: (i) the full legal name of the Reporting Company, including any trade names or other names of the Reporting Company which are used to conduct the business of the Reporting Company; (ii) the address of the Reporting Company’s principal place of business; (iii) the state or jurisdiction in which the Reporting Company was formed or established; and (iv) the unique identification number of the Reporting Company (i.e., the EIN or TIN)..

In addition, each Reporting Company will also need to report information on the Reporting Company’s Beneficial Owners. A Beneficial Owner is defined as anyone who (i) exercises “substantial control” over the Reporting Company; or (ii) owns or controls no less than 25% of the ownership interests in the Reporting Company. Substantial control is defined as anyone who: (i) serves as a senior officer of the Reporting Company; (ii) has authority over the appointment and removal of any senior officer or a majority of the board of directors (or a similar body) of a Reporting Company; (iii) directs, determines, or has substantial influence over the important decisions of a Reporting Company; or (iv) has any other form of substantial control over the Reporting Company. All Reporting Companies formed after January 1, 2024, must also report information on the Company Applicant. The Company Applicant is defined as the individual who directly filed the document which created the Reporting Company, or registered the Reporting Company to do business in the United States. The required Company Applicant information is the same information as the Beneficial Owner information defined above. The Company Applicant information reporting is not required for any entities formed prior to January 1, 2024.

All Reporting Companies in existence prior to January 1, 2024, must file an initial report with the required Reporting Company and Beneficial Owner information no later than January 1, 2025. For all Reporting Companies formed between January 1, 2024, and December 31, 2024, Reporting Companies currently have ninety (90) days from the date of formation to file their initial report containing the Reporting Company, Beneficial Owner, and Company Applicant information. All entities formed after January 1, 2025, will have thirty (30) days to file their initial report.

Initial reports must be filed through FinCEN’s Beneficial Ownership Secure System (“BOSS”) on the FinCEN website. If any Reporting Company or Beneficial Owner information changes after the initial report, the Reporting Company or Beneficial Owner must update the inaccurate information within thirty (30) days of the reported change, or within thirty (30) days from the date that the Reporting Company or the Beneficial Owner becomes aware of the inaccuracy in the report. All information submitted to FinCEN is to be securely stored through BOSS and should not be available to the public.

Please note that certain exemptions apply to entities that are already or have previously been subject to federal reporting requirements, including, but not limited to, banks, credit unions, insurance companies, security brokers, investment and venture capital fund advisers, accounting firms and certain “large operating companies” (as defined in the CTA).

Non-compliance with the reporting requirements in a timely manner can result in civil penalties of $500 per day for each day that the violation continues, up to a maximum of $10,000. The CTA may also impose criminal penalties in the event any person willfully provides FinCEN with false, fraudulent, or knowingly incorrect information, in which such penalties may result in criminal fines of up to $10,000, imprisonment, or both.

We recommend that you begin compiling the necessary Reporting Company and Beneficial Owner information so that you may file the initial report in a timely manner. As a reminder, the initial report for entities created before January 1, 2024, must be submitted to FinCEN prior to January 1, 2025. If you would like our firm to assist you in filing the initial report and in your continued compliance with the CTA, or if you have any questions regarding the new reporting requirements, please contact our office no later than thirty (30) days prior to the deadline to file your initial report.

For more information, please contact us at 920-430-1900 .

Joint Accounts – Friend or Foe?

Thu, 28 Dec 2023 22:27:04 GMT

A common occurrence: an elderly parent, or one who is unused to managing his finances after the death of a spouse, takes one of his children to the bank and asks to make the child a joint owner of his deposit accounts. The parent is doing this to allow the child to assist him in paying bills, and perhaps to avoid probate of the accounts when the parent passes away. In doing so, however, the parent often fails to appreciate the legal risks and ramifications.

In the recent case of Henke v. Klawitter , the Wisconsin Court of Appeals determined that the decedent (Clarence) created a joint account with his daughter (Carla) for purposes of convenience only, and that the funds remaining in the joint account at the time of Clarence’s death properly belonged to his estate, rather than Carla. This may seem like the obvious result to a layperson, but to an estate planning attorney this is a surprising and unexpected victory for the estate. The case was even recommended for publication (many Court of Appeals decisions are unpublished and therefore have no precedential value), suggesting that the case either clarifies an existing rule of law or could be of substantial and continuing public interest.

Under Wisconsin law, funds remaining in a joint account at the time of one of the owners’ deaths are presumed to pass to the surviving joint owner, rather than the deceased owner’s estate. This presumption can be overcome, but not easily. Doing so requires proof of the decedent’s intent at the time the account was created, which is sometimes years prior to his or her death. More specifically, overcoming the presumption requires clear and convincing evidence that the decedent did not intend to create an account with rights of survivorship.

In Henke, the Court relied on testimony from various parties, including Carla herself, the bank teller who assisted Clarence in adding Carla as a joint owner, and other family members and friends of Clarence. Notably, there was testimony that Clarence did not understand the legal import of making Carla a joint owner; he told other family members he had only added her as a power of attorney on the account. The Court ultimately found that Clarence intended to create an “account of convenience,” rather than a true joint account.

Clarence’s wishes were ultimately realized, but the Court of Appeals’ decision was rendered on October 12, 2023, almost two years after his death. The estate likely spent thousands of dollars in attorney’s fees, if not tens of thousands, to pursue recovery of the funds. The relationship between Clarence’s children was undoubtedly affected by the dispute. All of which could have been avoided if Clarence had fully understood both the legal effect of the joint account and his other available options.

There are far more suitable solutions to the needs joint accounts are often created to fulfill. A properly drafted durable power of attorney for finances allows the designated agent to transact business on the principal’s accounts, including payment of bills. An agent under a power of attorney also has fiduciary duties to the principal; the agent is required to act only on the principal’s behalf and for his or her benefit. A joint owner, on the other hand, has the right to use the funds as he or she desires, including withdrawing the funds in their entirety, without the consent of the other owner. Even if the joint owner faithfully fulfills his or her duties as agent, his or her unfettered ability to access the joint account may raise questions or concerns from other family members, potentially causing family discord.

There are also more reliable ways to avoid probate than designating a joint owner. One document that does not avoid probate is a Last Will and Testament – it only directs how the probate should be administered and the assets distributed. For larger estates or those with numerous or minor beneficiaries, a revocable trust (also called a living trust) may be the best solution. If there are relatively few beneficiaries who are all adults and get along well, transfer-on-death or payable-on-death designations can be a quick and easy way to avoid probate. In other words, there is no one size fits all solution, but a joint account is rarely the correct answer.

For more questions regarding power of attorney documents, contact Emily Ames at 920- 430-1900 .

Restrictive Covenants and Confidentiality of Employees

Tue, 15 Aug 2023 22:26:11 GMT

States across the country are cracking down on the enforceability of restrictive covenants in employment agreements, including non-competition, non-solicitation, and confidentiality provisions. States vary in their enforceability of restrictive covenants, and the level of restriction that is allowed differs in each state. Recently, the Federal Trade Commission (“FTC”) proposed a federal ban on non-competition clauses, and potentially other restrictive employment covenants, that would make them illegal. The FTC is set to consider the proposed ban in April of 2024.

In July, 2022, Wisconsin jumped on the bandwagon of restricting the enforceability of confidentiality clauses in employment agreements in Diamond Assets LLC v. Godina, 2022 WI App 47, 404 Wis.2d 404, 979 N.W.2d 586 (Wis. App. 2022). Godina terminated his employment with Diamond Assets LLC (“Diamond”), and emailed “Confidential Information,” as it was defined in his employment agreement, to a third party the day after his termination. Diamond brought an action against Godina for breach of contract, while Godina filed a motion to dismiss on the grounds that the restrictive covenants were unenforceable.

Wisconsin’s legal standard for the enforceability of restrictive covenants in employment agreements is governed by Wis. Stat. §103.465. The statute provides that any employer seeking to enforce a restrictive covenant has the burden to show that the covenant is reasonable in all aspects. The covenant must show that the restrictions: (1) are necessary to protect a competitive interest of the employer; (2) have a reasonable time limitation; (3) have a reasonable territorial/geographic limitation; (4) are not overly harsh or oppressive to the employee; and (5) are reasonable to the general public and not contrary to public policy.

The Court separated its analysis of the Diamond restrictive covenant into three distinct sections: (1) information specifically “included” in the definition of “Confidential Information”; (2) information specifically “not included” in the definition of “Confidential Information”; and (3) the other “duties and obligations concerning confidential information” found throughout the remainder of the confidentiality provisions. The confidentiality covenant states that “Confidential Information” will include: “all data and information relating to the business and management of Employer….” The Court ruled in favor of Godina, stating that this clause would include any and all information related to Diamond, whether reasonably protectable or not.

The purpose of defining and listing what constitutes “Confidential Information” under an employment agreement is to limit and narrow the scope of what information the employee cannot disclose. Godina’s employment agreement included these terms, but the Court took issue with their definitions, and found that the terms defining “Confidential Information” further broadened the definition, rather than limited it. Included in the “Confidential Information” limiting definition was Employer’s “Business Operations,” which was later defined in the agreement as “operational information, including but not limited to … the manner and methods of conducting Employer’s business.” The Court ruled that this definition is virtually unlimited, and if enforceable, would make Godina liable for sharing any detail of Diamond’s workplace and operations. For example, the Court stated that as drafted, Godina’s restrictive covenant would prohibit sharing the types of pens that are purchased by Diamond. The Court reasoned that Diamond has no competitive advantage in keeping the pens it purchases confidential, and therefore, the restriction is overbroad. For these reasons, the Court ruled that the confidentiality covenant was in violation of Wis. Stat. §103.465, and thus unenforceable.

From a practical standpoint, the Diamond Assets case is the most recent case to further restrict the enforceability of confidentiality provisions and other restrictive covenants often contained in employment agreements. According to the Wisconsin Court of Appeals, to be enforceable, confidentiality provisions must clearly outline what information constitutes “Confidential Information”, what information is not included in that definition, and how the protection of such information is necessary for employers. Employers should take extra care in what they deem “confidential”, and the extent of restrictions that are outlined in restrictive covenants of their employees’ employment agreements. In addition, employers should work with legal counsel to ensure that their confidential information is protected, and that any restrictive covenants contained in its employment agreements are not overbroad or unenforceable under Diamond Assets and the statutes.

For more information, contact us at 920-430-1900 .

Mental Health Conditions Under FMLA

Wed, 28 Jun 2023 22:25:02 GMT

When most employers think about employee leave under the Family and Medical Leave Act (“FMLA”) they typically envision leave for expectant mothers or leave requested to recover from serious physical health conditions such as surgery. However, FMLA protection applies to more than physical conditions, such as employees seeking leave for mental health conditions. Research has shown that a growing number of employees are dealing with serious mental health issues that render them unable to attend work. In response to the increase in employees seeking FMLA leave for mental health conditions, the United States Department of Labor (“DOL”) has provided written guidance on when and how FMLA leave can be taken to address the mental health conditions of employees and their families.

Under the FMLA, private employers who have fifty or more employees for at least twenty workweeks a year are required to provide their eligible employees with at least twelve weeks of unpaid leave for serious health conditions. Employees are eligible for FMLA leave once they have worked for a covered employer for at least twelve months and logged at least 1,250 hours of work during the period immediately preceding the requested leave. While FMLA is unpaid, it is also job-protected, meaning that employees returning from FMLA leave must be restored to their original job or equivalent position.

The new guidance issued by the DOL clarifies that certain mental health conditions can be included as a serious health condition qualifying for FMLA. In order to be considered a “serious health condition,” a mental health condition must require either: (1) inpatient care; or (2) continuing treatment by a health care provider. Inpatient care includes at least one overnight stay in a hospital or other medical care facility. Treatment centers, such as those designed to treat addiction or eating disorders, also meet the definition of inpatient care. The DOL also clarified that a serious mental health condition that requires continuing treatment by a health care provider includes: (a) conditions that incapacitate an individual for more than three consecutive days and require ongoing medical treatment including either multiple appointments with a health care provider or a single appointment and follow-up care (e.g., prescription medication, outpatient rehabilitation, counseling, or behavioral therapy); and chronic conditions (e.g., anxiety, depression or dissociative disorders) that cause occasional periods when an individual is incapacitated and require treatment by a health care provider at least twice a year.

In addition to taking leave for their own mental health conditions, the DOL guidance provides that a parent may use FMLA leave to provide for a spouse, child or parent who have qualified mental health conditions. Typically, FMLA leave to permit an employee to care for a child with a serious health condition is generally available only when the child is under the age of 18. Notably, the most recent DOL guidance provides that a parent should be granted FMLA leave to care for an adult child, if the child’s mental condition qualifies as a disability. Under FMLA, a disability is a mental or physical impairment that substantially limits one or more of the major life activities of the individual. Major life activities include, but are not limited to, activities such as caring for oneself, performing manual tasks, seeing, eating, standing, reaching, breathing, communicating and interacting with others.

When an employee requests any type of FMLA leave it is always important for employers to keep in mind the laws related to confidentiality of employee health records. Employers may require an employee to submit a certification from a health care provider to support the employee’s need for FMLA leave. The information provided on the certification must be sufficient to support the need for leave, but a definitive diagnosis is not required, meaning that the specific mental health condition requiring the employee’s leave need not be disclosed. Any medical records collected by the employer must be maintained in a file separate from the employee’s general personnel file.

While it is somewhat difficult to observe mental health conditions that affect employees, employers must still treat them the same as physical health conditions. If the qualifications set forth above are met, employees are still entitled to leave under the FMLA to care for their mental health condition or the mental health condition of their loved ones. Given this new guidance, it is a good time for employers to review their leave policies and work with legal counsel to ensure that their policies comply with the new guidance from the DOL.

For more information, contact Corey Tilkens at 920-430-1900 .

Ending Forced Arbitration

Wed, 28 Jun 2023 22:23:46 GMT

On March 3, 2022, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “Act”) into law. Both the House of Representatives and the Senate passed the Act in February in a rare showing of bipartisanship. The Act prohibits enforcement of contract provisions that mandate third-party arbitration of workplace sexual harassment or assault claims. The Act was likely passed in a response to the #MeToo movement.

Many employers have implemented mandatory arbitration clauses in employee or other agreements that require both the employer and its employee to arbitrate most or all types of employment claims, including claims alleging sexual harassment. As a result of the Act, employees will have the ability to render these mandatory arbitration clauses unenforceable as it relates to “sexual assault disputes” or “sexual harassment disputes”.

The Act defines “sexual assault dispute’ as a “dispute involving a nonconsensual sexual act or sexual contact.” A “sexual harassment dispute” is defined as a dispute relating to any of the following conduct directed at an individual or group of individuals: (1) unwelcomed sexual advances; (2) unwanted physical contact that is sexual in nature, including assault; (3) unwanted sexual attention, including unwanted sexual comments and propositions for sexual activity; (4) conditioning professional, educational, consumer, health care, or long-term care benefits on sexual activity; or (5) retaliation for rejecting unwanted sexual attention.

If a dispute arises as to whether a particular claim qualifies as a “sexual assault dispute” or “sexual harassment dispute, the Act provides that a court, not an arbitrator, is to resolve such dispute, even if there is a contractual term to the contrary. The Act applies not only to federal claims under Title VII of the Civil Rights Act of 1964, but also to state and tribal law claims for sexual assault and/or harassment. Employees can also avoid class, collective, or multi-plaintiff action waivers in connection with sexual assault and/or harassment disputes.

The Act is effective immediately and applies to both previously executed arbitration agreements between employers and employees and future agreements, but the Act will only apply to new sexual assault or sexual harassment claims made after its effective date and not pending claims. It is important to note that the employee’s ability to render the mandatory arbitration clause as invalid is framed within the Act as an “election”. Therefore, it is likely that the employee resisting arbitration must affirmatively challenge the arbitration agreement, rather than the arbitration agreement being automatically unenforceable.

Notably, the Act will still permit employers to mandate arbitration related to employment claims related to discrimination, retaliation and wage and hour claims. However, many employees will bring multiple, claims against their employer such as a claim for sexual harassment along with a derivative claim of discrimination or other employment-related claims. Although courts have traditionally severed arbitrable claims from non-arbitrable claims under the Federal Arbitration Act in other circumstances, employees may look for ways to argue against such severance under the Act. It is unclear at this time how courts would address these interrelated claims. For instance, the sexual harassment claim could be litigated in court, but the discrimination claim could proceed in arbitration pursuant to a valid arbitration clause. In this instance, employers would need to determine whether to permit all claims to proceed to court or whether to split the claims into two forums. Alternatively, it could be determined that the sexual harassment claim, along with any other potentially unrelated claim be litigated in front of a court.

As a practical matter, the impact of the Act could have a seismic effect on employers. While mandatory arbitration clauses ensured that employee disputes were resolved through private arbitration, the Act will now allow employees to litigate sexual assault and sexual harassment matters in public. Employers may be confident that they will prevail in defending such claims, but will now need to analyze the risks between succeeding in their defense of the claim versus the adverse publicity it may receive going through a public trial.

Employers have made strides in preventing harassing behavior in the workplace but further preventative actions should always continue to be implemented. Such efforts include providing anti-harassment trainings, communicating the importance of compliance amongst all employees, creating and ensuring a process to investigate credible allegations and promptly addressing any instances of harassment that may arise. In addition, employers should work with counsel to ensure that employment documents referencing arbitration of these claims reflect the Act.

For more information contact Corey Tilkens at 920-430-1900 .

New WI LLC Laws

Tue, 29 Nov 2022 22:22:46 GMT

On April 15 ^th , 2022, Wisconsin Governor Tony Evers signed the 2021 Wisconsin Act 258 into law, which will bring forth changes to Wisconsin’s LLC laws. The new Wisconsin Uniform Limited Liability Company Law (WULLCL) is set to take effect on January 1, 2023. The new WULLCL will apply to all existing Wisconsin LLCs and all new Wisconsin LLCs created after January 1, 2023. However, all LLCs that exist prior to January 1, 2023, are given the option to “opt out” of the changes and continue to be governed by the previous LLC laws. To opt out, an LLC must file a Statement of Nonapplicability with the Wisconsin Department of Financial Institutions (WDFI) no later than December 31, 2022 . If an LLC chooses to opt out, it can opt back in to the new WULLCL at any time by filing a Statement of Applicability with the WDFI.

Important changes implemented by the enactment of the new WULLCL include, without limitation, the following:

Members and managers of an LLC can no longer agree to waive their fiduciary duties of loyalty and care to each other. However, under the WULLCL, the fiduciary duties can be defined in the Operating Agreement of the LLC, in order to specifically describe what the fiduciary duties entail.
A member is no longer an agent of an LLC solely by reason of being a member. The authority or limitations of specific positions, persons, and members of the LLC may be outlined by filing a Statement of Authority with the WDFI, or otherwise set forth in the Operating Agreement.
For LLCs taxed as partnerships, distributions will be based on the value of the members’ relative contributions as measured by the partnership capital accounts for that fiscal year in which the distributions are made, rather than based on the initial contributions made by the members as reflected in the Company’s records unless otherwise set forth in the Operating Agreement.
Members of an LLC may now be “non-economic members”, which includes persons who became members without acquiring a transferable interest or without making or being obligated to make a contribution.
Creditors may seek court ordered sales of a member’s membership interest in single member LLCs, which would allow the creditor to obtain the full and entire right, title, and membership interest of the member against which judgment was awarded (“Judgment Member”), without having to obtain the consent of the Judgment Member. The Judgment Member would then be dissociated from the LLC and the creditor would own the LLC.

The members and managers of existing LLCs should review their operating agreements and determine how these new changes will affect their business. Based on this review, the members and managers of the LLC must determine whether to proceed and be governed by the new laws, or whether opting out would be better for their business.

Any single member and multi-member LLCs that wish to opt out of the new WULLCL must do so with the WDFI no later than December 31, 2022 . If an LLC does not opt out by such date, it will automatically be deemed to have opted in and will be subject to the new WULLCL.

Please note that the new WULLCL will apply to any LLC(s) that you own, and therefore the decision as to whether you should opt out should be addressed for each entity.

To determine whether opting out of the WULLCL before December 31, 2022 , is best for your LLC(s), or if you have any questions about the WULLCL, we strongly advise that you contact legal counsel to discuss how to move forward with your LLC(s).

2021 Wisconsin Act 258

Marital Property Law

Fri, 04 Nov 2022 22:20:25 GMT

Marital Property Law – It’s Not Just for Divorce

Most Wisconsin residents are aware that Wisconsin is a “marital property” state. Their understanding of what this means, however, is often limited to its effect on property division in the event of divorce. The Wisconsin Marital Property Act was passed on April 4, 1984, with an effective date of January 1, 1986. The Act implements a comprehensive property classification scheme that governs the rights and duties of married persons during their marriage, the disposition of assets upon the death of either spouse or in the event of divorce, the rights of creditors, and even the application of federal tax law. It applies to all married persons who are domiciled in the State of Wisconsin. Spouses may, however, alter the classification of assets by entering into a marital property agreement, often referred to as a prenuptial agreement when entered into in anticipation of marriage.

The basic presumption under the Act is that all assets and income acquired or earned by either spouse during the marriage is marital property, including the proceeds from the sale of marital property. Each spouse owns an undivided one-half interest in each asset that is classified as marital property, regardless of how an asset is titled. This has both benefits and downsides. If debts are incurred by either spouse during the marriage, the creditor can typically recover against the couple’s aggregate marital property assets, in addition to the obligated spouse’s individual property, discussed below.

Spouses are prohibited from unilaterally disposing of marital property assets during their lifetime, and in most cases a spouse’s ability to direct the disposition of marital property assets upon his or her death remains subject to the surviving spouse’s interest in the assets. For example, if a spouse provides for the non-probate disposition of an individually titled bank account to a third party by way of a “payable on death” designation, the surviving spouse will have a claim against the third party upon the title-holding spouse’s death for the surviving spouse’s one-half interest in the bank account, assuming it is classified as marital property. This is often an issue in the case of second marriages, where both parties may wish to direct their assets to their respective children, rather than the other spouse.

It is important to note, however, that the classification of an asset as marital property does not affect the management and control of the asset, which remains vested in the holder of record. Take, for example, a spouse who holds shares of voting stock in a corporation. The shares are titled in the spouse’s individual name but are classified as marital property. The title-holding spouse has the sole right to vote said shares, but his or her spouse also has an undivided one-half ownership interest in the shares.

In addition to marital property, assets may also be classified as the individual property of either spouse. Individual property primarily consists of assets owned by either spouse prior to the marriage or assets received by a spouse as a gift or inheritance. As with marital property, the classification extends also to any income earned from individual property and proceeds from the sale of individual property. Unlike marital property, spouses are generally free to dispose of their individual property as they see fit, both during their lifetimes and upon their deaths. The classification of assets can, however, become “mixed” if marital property and individual property are commingled; for example, if income that is classified as marital property is deposited into a bank account that is classified as one a spouse’s individual property. Although it may be possible to trace the marital and individual property components of the bank account, the starting presumption is that mixed property is marital property.

In sum, Wisconsin’s marital property law has broad ranging implications upon the rights and responsibilities of married persons domiciled in the State of Wisconsin, and in the case of marital property assets, what you don’t know can sometimes hurt you.

If you have more questions, please contact Emily Ames at 920-430-1900 or eames@hdz-law.com .

Probate – Frequently Vilified and Misunderstood

Fri, 29 Apr 2022 22:19:34 GMT

Few, if any, court proceedings are as vilified as probate, typically because it’s perceived as being time consuming and expensive. Despite this widely held opinion, many don’t have a good understanding of what the probate process actually entails. At its most basic, probate is the court-supervised administration of a decedent’s assets after his or her death. Despite being “court supervised,” however, most probate matters are actually handled by the county register in probate, rather than a judge, and unless disputes arise during the process, required court appearances are rare. Although certain filing fees are required, the main fee is equal to a small percentage of the value of the assets subject to probate.

The basic steps of a probate include having the decedent’s Last Will and Testament admitted, collecting the decedent’s assets, paying all valid bills and expenses, preparing any necessary tax returns, and distributing the net proceeds of the estate to the beneficiaries. As part of this process, the personal representative, referred to in some jurisdictions as an executor, is required to prepare an inventory of the assets that subject to probate, which must list the fair market value of the assets as of the decedent’s date of death, as well as an accounting of his or her administration of the estate. This information is provided to both the register in probate, where it becomes public record, and the beneficiaries of the estate.

Contrary to popular belief, being named as personal representative in a decedent’s Last Will and Testament does not automatically give a person the authority to begin administering the decedent’s estate. Rather, the Last Will and Testament, if one exists, must first be admitted to probate before the register in probate will issue Domiciliary Letters to the personal representative, thereby providing his or her authority to act on behalf of the estate.

Another common misconception is that preparing a Last Will and Testament circumvents the probate process. The primary purposes of a Last Will and Testament are to outline how a person’s assets are to be distributed upon their death, designate a personal representative and trustee of any trusts created under the Last Will and Testament, and nominate a guardian for any minor or incapacitated children. Without a Last Will and Testament, the default laws of the State of Wisconsin, also referred to as “intestacy,” will set those terms. In sum, a Last Will and Testament specifies the terms of the probate administration but does not itself avoid probate of the decedent’s assets.

It's also important to understand the scope of probate, which applies only to assets that are titled in the decedent’s individual name at the time of his or her death. It does not apply to: (1) jointly titled assets, which typically become the sole property of the other owner upon death; (2) assets that are subject to a payable on death or transfer on death designation, most commonly seen in the case of real estate, checking and savings accounts, and non-qualified investment accounts; and (3) assets subject to a beneficiary designation, as are most retirement accounts and life insurance policies. Because these assets are not subject to probate, they are also not subject to the decedent’s Last Will and Testament.

Finally, there are various summary procedures that may be utilized where the net value of the decedent’s assets that would be subject to probate is less than $50,000. These include the Transfer by Affidavit, which allows an heir of the decedent, as well as and certain other interested individuals, to take possession of the decedent’s assets for purposes of satisfying any outstanding debts and distributing the remaining assets to the decedent’s heirs or beneficiaries, depending on whether the decedent left a Last Will and Testament. In the event the debts of the estate exceed its assets, additional summary procedures exist for purposes of assigning the decedent’s assets between creditors of the estate and the decedent’s surviving spouse and minor children, if applicable.

In sum, probate is an important and often unavoidable procedure, the burden of which can be dramatically lessened by advance planning and the assistance of an experienced probate attorney.

For further questions, please contact Emily Ames at 920-430-1900 .

Forced Arbitration of Sexual Harassment Claims Ends

Tue, 15 Mar 2022 16:18:33 GMT

Legislation Passes Ending Forced Arbitration of Sexual Harassment Claims

For more information contact Corey Tilkens at ctilkens@hdz-law.com or 920-430-1900 .

Solar Panel Projects

Sat, 05 Mar 2022 22:17:29 GMT

New Year, New Energy Goals

The sub-zero temperatures that afflict the state of Wisconsin in the winter months may make it hard to believe, but Wisconsin is a new hotspot in terms of moderate to large scale solar panel projects (“Projects”). Projects have continued to pop up all over the state in recent years. The current U.S. Department of Energy and Department of Interior has and continues to deploy clean energy efforts to increase the county’s sources of renewable energy, and with world-wide initiatives also pushing for clean energy and reduced emissions Projects in Wisconsin show no signs of slowing down.

At this point you may be asking yourselves, why solar and why Wisconsin?

First, the cost of solar power, from the technology to the installation, has declined more than 75% in the last decade. With this reduction in cost, Projects are becoming more and more competitive with traditional nonrenewable energy power plants.

Further, Projects of moderate to large scale are becoming more popular because instead of generating enough electricity to support a single home or business, like traditional solar panels mounted on a roof or single property can produce, a moderate to large scale Project can generate enough electricity to serve a much larger customer base, similar to more traditional non-renewable energy power sources. These Projects are typically located on vacant relatively flat land ideally located near existing electric transmission infrastructure. Wisconsin happens to be a perfect location for these Projects due the over 14 million acres of farmland the State has to offer. Currently, there are over 20 solar farms operating in Wisconsin, generating a range of 1 to 5 megawatts of solar capacity with several additional Projects in various stages of development. To put it in perspective, a 1-megawatt Project can produce enough electricity annually to offset the needs of approximately 190 typical Wisconsin homes.

Now you may be asking yourselves, what are the benefits for me personally if I decide to lease my property ?

This is a vital question you should ask yourself given that developers of Projects of this magnitude desire to enter into long term solar leases (“Leases”) with landowners that typically range between 30 and 50 years. This means that if the Project gets the “greenlight” from all of the necessary governmental authorities and electric company, a significant portion of your property could be tied up for decades.

One benefit of a long-term Lease is that while a portion of your property operates solar panels, which provides a steady form of annual income paid per acre, the other portion of your property can still be used or rented as it has been previously, albeit to the degree that it does not interfere with the access or sunlight utilized by the Project. The income from the Lease can also supplement the income earned on the non-leased property and act as hedge from the ever changes farming commodity prices, while allowing multigeneration farms to continue to exist and thrive.

The land utilized by the Project can be replanted with low-lying grasses, plants and flowers that can act as a cover crop to rebuild the soil, reduce soil erosion, and provide a habitat for necessary pollinators for other surrounding farmland. Additionally, because Projects and solar panels have a lifespan, once the solar panels are removed and the property is restored to its previous condition, the soil will be in a position to resume farming.

Another benefit is that solar technology has come a long way regarding its intrusiveness on the leased land and surrounding properties. While Projects related to clean energy are on the rise as is the acceptance of them, it is important to understand that all landowners and municipalities are different, and your neighbors or your municipality may not be initially receptive for these new Projects. These Projects often need the cooperation of multiple landowners to lease enough acreage to make the Project feasible, and therefore, the more neighboring properties that can come together as part of the Project, the more likely their voices will be heard and the community and municipality will get behind their residents. Unlike other forms of energy production, there is no combustion, no odor or output of any chemicals. Further, the noise pollution of the panels is limited to the cooling fans within the equipment that only operate when the sun is shining and power is being generated. Moreover, current technology solar panels should have an anti-reflective coating which are made to absorb light rather than reflect it making less of the glare that is commonly associated with previous generation solar panels.

Overall, everyone’s property and situation are unique, and therefore every person approached by a solar company or considering a solar lease needs to fully understand the benefits and issues that arise with such Lease. Therefore, it is important to speak with an attorney knowledgeable about solar leases so you can determine whether solar is right for you.

For more information email Katrina E. Cox at kcox@hdz-law.com or call 920-430-1900 .

Tax Considerations Prior to Transferring Your Business Ownership

Sat, 05 Mar 2022 22:14:31 GMT

Act Now? And How? Tax Considerations Prior to Transferring Your Business Ownership

With federal tax laws potentially changing in the near future, it is more important than ever to review your succession plan and/or exit plan to determine when and if now is the right time to transfer your business ownership. While it is important to not let taxes alone drive how and when to sell your business, you must weigh your options based on when and the type of transfer that best fits your goals for the future of your business.

There are several ways to transfer your ownership interest in a business, each with different tax implications. First, if you are selling your ownership interests, it is important to determine whether it will be a stock sale or asset sale if you are a corporation.

For example, in a stock sale of a C Corporation, generally, if the stock is sold at a gain from the stocks original basis, the gain is taxed at the capital gains rate on the individual shareholder level, not at the business level. The capital gains rate is generally always lower than an individual’s ordinary income rate and also allows the shareholders and business to avoid a “double tax” effect as described below. Currently, the 2021 federal long-term capital gains rate is between 0% and 20%, depending on the tax bracket of the taxpayer. The federal long-term capital gains rate ceiling is much less than the ordinary federal income tax rate of an individual that can go as high as 37% in 2021. This type of sale therefore benefits the Seller from a tax perspective.

In contrast to a stock sale, if the sale is structured as an asset sale, any gains due from the sale of assets will cause the following tax events: (i) the business to be taxed at the ordinary federal corporate tax rate and (ii) each shareholder with pay the ordinary federal income tax rate when the business is liquidated after the assets are sold. This creates a “double tax” effect that disadvantages Sellers, but allows for Buyers to enjoy more immediate tax benefits like an increase in basis and potential immediate write offs by way of depreciation.

So what is the right move? While it seems that in the Seller’s perspective from purely a tax lability standpoint that a stock sale is more beneficial than a asset sale, other factors, including, purchase price, state tax implications, the type of entity, the type of business and proposed federal tax changes may affect your decision. For example, current proposed federal changes include potentially doubling the federal long-term capital gain tax rates for taxpayers with more than $1 million of adjusted gross income. If the proposed federal changes were implemented, the scale weighing the benefits and burden of a stock sale versus an asset will shift. Further, if the entity is taxed as an S Corporation or partnership, different tax events may occur which can also tip the scales.

A second type of transfer to consider in a family situation is gifting the ownership interests. Based on your succession plan and the proposed federal changes to gift and estate taxes, you may choose to start transferring your ownership interests yet this year. Under current federal law, gift transfers during your life and after your death are both taxed at 40% unless an exemption or exclusion applies to protect the transfer from taxation. The current annual exclusion of gift tax is $15 thousand per recipient without incurring a gift tax. Additionally, the lifetime gift tax exemption is $11.7 million for a single donor and $23.4 million for a married couple. Gifts made in excess of the $15 thousand annual exclusion will first consume the lifetime exemption amount. When the lifetime exemption amount is fully consumed, a donor would then owe gift tax on any amount in excess of the lifetime exemption. These gift tax exclusions and exemptions are scheduled to drop almost in half, to approximately $6.3 million per person ($12.6 million per couple) beginning in 2026, with the potential to change sooner. Additionally, rate increases for gift and estate tax are also being discussed.

For example, if a couple owns a $15 million business, and has yet to use their $23.4 million exemption amount, they could transfer their ownership in the business to their children in 2021 (or a trust for the benefit of their children) free of gift tax, because they would have enough exemption to cover the gift. In contrast, if the couple waits to make the gift, and the exemption amount drops to $12 million per couple, then the $15 million gift after the tax change will result in a $1.2 million gift tax (i.e. [$15,000,000 – $12,000,000] x 40% = $1,200,000).

All in all, if you are looking to sell or gift your business, it is always important to factor in the current tax regulation climate into your decision. Understandably, it is hard to make a decision based on “possible” tax changes, but in the ever-changing tax world, it is something that cannot be ignored. It is always better to be proactive in your approach, so when the time is right, consult accounting and legal professionals to guide the way.

For more information email Katrina E. Cox at kcox@hdz-law.com or call 920-430-1900 .

Estate Planning for Cryptocurrency

Tue, 28 Sep 2021 22:13:33 GMT

Cryptocurrencies such as Bitcoin, Ethereum, and the satirically named Dogecoin have seen increased news coverage in recent months. The 24-hour high value of Bitcoin on August 1, 2021, was $46,691.09. But what, exactly, is cryptocurrency, and how can you incorporate it into your estate plan?

Cryptocurrency is a digital medium of exchange that does not exist in physical form, but instead consists of a decentralized and computerized ledger. This ledger, commonly referred to as a blockchain, is a continuously growing list of time-stamped transactions that are linked and secured using cryptography. Transactions are typically peer-to-peer, without the involvement of any financial institution or other middleman. Although this system is incredibly secure, transactions are also virtually irreversible.

Unlike traditional currency, cryptocurrency is not subject to any centralized government authority. For this reason, some countries have attempted to ban or restrict the use of cryptocurrency, and certain financial institutions will not accept cryptocurrency as a form of exchange. In March of 2014, the Internal Revenue Service decided that Bitcoin and other cryptocurrencies should be treated as personal property (similar to stocks or real property) for tax purposes. Sales of cryptocurrency are therefore subject to capital gain or loss, and cryptocurrency created through mining or received as payment for goods or services is subject to ordinary income tax. In recent years, the IRS has ramped up enforcement efforts by subpoenaing various cryptocurrency exchanges for their transaction records.

Like physical currency, cryptocurrency can be stored in a digital “wallet.” This wallet can be hardware-based (stored on a USB drive or other similar device) or web-based (stored in a digital cloud service). Generally speaking, hardware-based wallets are more secure since they cannot be hacked, but it’s also possible to physically lose them. Regardless of how the wallet is stored, it cannot be accessed without the appropriate credentials. One downside to this storage method is the potential for cryptocurrency to become inaccessible. It is estimated that as much as twenty percent of the world’s cryptocurrency is currently stored in inaccessible wallets.

For those who own cryptocurrency, it is critical to ensure that the individuals who will be administering their estate are aware of the cryptocurrency’s existence and have the tools necessary to access and distribute it. Step one of this process is to keep a comprehensive list of all cryptocurrency wallets, including the location and username, password, access key, etc. for each such wallet, in a secure location, such as a fireproof safe or safety deposit box. Step two is to ensure that your personal representative or successor trustee knows where to find this information upon your death or incapacity. Keep in mind that if this information is not kept up to date, it will be impossible for the successor fiduciary to access the wallet. It may also be necessary, depending on the successor fiduciary’s familiarity with cryptocurrency, to provide step-by-step instructions for how to access, distribute, and exchange the cryptocurrency.

Finally, it’s important to name a successor fiduciary who you trust completely. Given the ungulated nature of cryptocurrency, successor fiduciaries are not required to produce a death certificate or identification when accessing a decedent’s cryptocurrency. Most transactions are permanent without the recipient’s cooperation. Although cryptocurrency presents a number of unique challenges, the continued growth in its use and value suggests that it’s here to stay.

For more questions regarding estate planning for cryptocurrency, please reach out to Emily Ames at 920-430-1900 .

To ® or Not to ®?

Thu, 22 Jul 2021 22:09:13 GMT

Green Bay Packers. Apple. Amazon. Each of these names are trademarks and/or service marks (collectively referred to as “Marks”) known not only in the United States, but all over the world. But what is a Mark? Why is it important to have one? When should you as a business owner think about securing your own? We see Marks every day and yet the process to register and understand a Mark’s importance is far less known and recognized.

A Mark can be a word, phrase, symbol, design, image, color, or sound that are used to uniquely identify the source of a good or service and distinguish them from the goods or services of others. So why is this important to you and what can it do for your business? There are a variety of reasons that business owners choose to file a Mark with the United States Patent and Trademark Office (“USPTO”), including without limitation, to protect the name of their company or a slogan they use to stand out from the competition. What would Nike be without their famous name, that iconic swoosh, or the slogan “JUST DO IT”? A Mark allows you to protect your brand of goods and services, and protection is more important than ever given the sales and information on the internet regarding goods and services. A Mark creates a unique identifier for your good or service, allowing you to increase your business’s goodwill and protect your business from others for damages you may suffer if they try to use your Mark and cause confusion for consumers for their own personal gain. A ®, a designation used next to your Mark once it is registered with the USPTO, helps ensure to the consumer that are receiving the good or service they intended.

So how do you register a Mark? First, you need to determine whether the Mark you are looking to register is available. The success of your registration and protection of your Mark is based on both the use and priority of the Mark. The first party to utilize a Mark in commerce has first rights in that market versus subsequent users of the same or similar Marks. Therefore, in order to evaluate whether your Mark will successfully be registered, it is important to run a search (“Mark Search”) to see if there are any third parties using the Mark within the same field of goods or services and determine who has priority based on first use and the registered filing of the Mark with the USPTO.

It is important to determine the strength of the proposed Mark. The strength of a Mark is measured by the following categories from strongest to weakest:

Fanciful – Made up words that have no meaning in the origin language.
Arbitrary – Real words in the language, but these words have no meaning as applied to the applicable good/service.
Suggestive – Made up of words that have components suggesting an aspect or aspects of the good or service.
Descriptive – Describes an aspect of the good or service.
Generic – Name the good or service that will be covered. These cannot be registered.

Once a Mark Search has been conducted and the strength of the Mark is measured, an application to register the Mark can then be filed with the USPTO to be reviewed prior to the Mark being fully registered.

However, after the Mark is registered, the process is far from over. For the life of the Mark, you need to not only maintain the Mark with the USPTO and continue to use the Mark in commerce, but you must also take control of policing and ensuring that others are not using the Mark without your permission.

It is important to note that while registering a Mark protects your specific good or service, the registration of the Mark does not mean that the Mark is protected in every category of a good and/or service. There are a total of 45 classes that cover all goods and services. You can only register your Mark in a class or classes that you actually use the Mark in. For example, if your company sells a specific good and files for a Mark under a class for that specific type of good, a different applicant may apply for a Mark with the same name under a different class as long as there would be no likelihood of confusion (i.e. a type of dipping sauce versus shoes).

Prior to taking the leap into registering a Mark, it is important to do the research, narrow down the class and determine the ability to register your Mark based on marks already used and registered by others. Since filing, maintaining and protecting a Mark is a significant long-term investment, it is important to consult an attorney knowledgeable about Marks in order to best assess your options and likelihood of a successful Mark registration.

For further questions about patents and trademarks contact Katrina at 920-430-1900 .

TO TRADEMARK OR NOT TO TRADEMARK?

Pro Act of 2021

Tue, 16 Mar 2021 22:07:46 GMT

Biden Administration Expected to Advance PRO Labor and Employee Policies

Anytime a new president is elected into office, there comes a probability of change to policies, ideologies and laws. Many experts have predicted significant changes in the realm of labor and employment law as a result of President Biden taking office. It is not uncommon for new presidential administrations seek to “reverse” or modify standing law, executive orders, and other avenues to fit to their new agenda. This is no different in the Biden Administration as the newly elected president has made strong indications that he will support organized labor and employee-friendly policies. As has been widely reported, President Biden has vocally advocated to raise the federal minimum wage to $15.00 per hour. However, there are additional, lesser known, policies being pushed by the Biden Administration that could significantly impact employers.

President Biden already promised to sign the Protecting the Right to Organize (“PRO”) Act Act. The PRO Act would create sweeping changes to the National Labor Relations Act, focusing on pro-worker/union legislation. Specifically, the PRO Act would repeal the Taft-Hartley Act provision that allows state “right to work” laws. This is especially consequential for Wisconsin which became a right to work state in 2015 and barred private-sector employees who work under union-negotiated contracts from being required to join their unions or pay union dues. Currently, the decision for a state to become right to work is made at a state level, not a federal level. The proposed PRO Act effectively overturns Wisconsin’s state law by requiring that “all employees in a bargaining unit shall contribute fees to a labor organization for the cost of representation, collective bargaining, contract enforcement, and related expenditures as a condition of employment shall be valid and enforceable notwithstanding any State or Territorial law.”

The PRO Act would also limit the definition of an independent contractor and classify more individuals as employees. During his campaign, President Biden continuously advocated for employment status for “gig economy” workers such as Uber drivers. President Biden argued that misclassifying gig workers as independent contractors prevented those individuals from receiving many legal benefits and protections. Under the PRO Act, an “ABC Test” would be implemented to determine the status of workers. The ABC Test would classify a worker as an employee unless “(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of the service and in fact; (B) the service is performed outside the usual course of the business of the employer; and (C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.” If the ABC Test results in a reclassification of the worker, employers will need to determinate whether to terminate its relationship with individuals who currently qualify as independent contractors or decide to retain them as employees.

President Biden has also expressed support for providing employees with mandatory paid family and medical leave. The Family and Medical Leave Act requires employers with more than fifty employees to provide up to twelve weeks of leave for healthcare issues of an employee or family member, but does not require paid leave. Biden Administration officials indicate that the President has a strong interest in implementing a federal mandate requiring employers to provide paid leave to employees who need to take care of health issues for themselves or a family member, although details related to the proposed mandate have been murky.

Finally, it is anticipated that the Biden Administration will seek to review the overtime rules under the Department of Labor’s Wage and Hour Division and modify the minimum salary requirements for overtime exemptions. In 2016, President Obama tried to issue similar changes to allow more “white collar” employees to be eligible for overtime pay. The 2016 proposed rule raised the minimum salary for such workers to be exempt from overtime from $23,660.00 to $47,476.00. It’s likely that President Biden will seek to implement similar changes to the overtime laws, which ultimately could lead to more employees being eligible for overtime.

While this list of proposed changes in labor and employment relationships may seem overwhelming for employers, it is important to bear in mind that it is possible that many of the proposed changes get held up in Congress. Nonetheless, Employers should continue monitoring the proposed changes outlined above and seek out counsel if/when any of the changes are enacted into law. This is not the first time a new administration has proposed sweeping new legislation and threatened to reverse his predecessor’s NLRB rules and other legislation, and it will certainly not be the last. While the Biden Administration certainly seems to take a pro-employee approach, employers should be aware of their policies and procedures to ensure compliance with any future legislation.

For more information, contact Corey S. Tilkens at 920-430-1900 .

Solar Land Leases in Wisconsin

Thu, 21 Jan 2021 22:06:44 GMT

Shining a Light on Solar Land Leases in Wisconsin

While it is hard to imagine the “frozen tundra” as a state with enough sunshine to warrant a large market for solar panel projects (“Projects”), the already growing clean energy movement in the U.S. could soon see a boost in funding and tax credits. Therefore, Projects are likely to spring up in Wisconsin more frequently, and with enough acres, optimal collection sites and a well negotiated land solar lease (“Lease”), Wisconsin landowners, and particularly farmers, could have a bright opportunity on the horizon.

The Process

With medium to large scale Projects, developers contact landowners on adjoining properties to create a grid of solar panels big enough to be profitable for both the developers and energy companies to invest in that Project. Instead of purchasing land all across the country, Project developers enter into long term Leases typically between thirty and fifty years.

The first step for a developer is to have a surveyor/consultant determine areas and municipalities with enough available vacant property to support a Project. This is why farmers are often contacted, as they have acres of cleared and usually fairly flat land. If enough adjacent or nearby property owners can agree and get a consensus to move forward in negotiating a Lease, the developer will submit a proposal and draft of the Lease. While each landowner will sign a separate Lease with the developer with the unique specifics of their land, the main structure of the Lease will remain consistent between all landowners within any given Project. Therefore, the adjacent landowners can benefit from costs of scale by banding together to engage an attorney to negotiate the Lease.

Once the Lease is executed, the option period of the Lease begins and the landowner receives an initial payment. This option period usually allows for a window of a couple of years for the developer to perform due diligence, which includes: (i) performing weather, soil, light, etc. testing that will allow them to find the most effective area/areas of the land under the Lease for the solar panels to be constructed; (ii) working with the applicable municipalities to ensure support of the Project and to secure proper zoning; and (iii) securing a contract with the related electric company to sell the energy collected from the solar panels. This time also allows for the landowner to (i) continue to use their property until the final amount of land under the Lease, if any, is determined by the developer; and (ii) be paid for allowing the developer access to run the necessary tests and analysis.

Lastly, once the developer determines the final amount of land to be covered under the Lease, the developer exercises their option to begin the Lease, at which time the option period payments are replaced with annual Lease term payments.

Considerations

While this type of Lease, if carried to fruition, can lead to a long-term steady stream of income to landowners, it is important to understand what a long-term Lease can mean for the landowner.

First, one must determine what payment amount will make it worth potentially tying up a significant portion of their property for several decades. When negotiating the Lease, it is important for the landowner to understand the minimum amount of acreage that they need to be paid for to keep not only the leased land under access and use restrictions, but also the landowner’s property immediately surrounding the leased area, which will likely have restrictions on what can be built or grown so as to not interfere with access to sunlight. Are you fine with potentially not being able to farm or build on the surrounding property of the leased land? What payment amount would you need on an annual basis to recoup that loss of use?

Second, while the push for and acceptance of clean energy Projects are on the rise, it is important to understand that all your neighbors or your municipality may not be on board for this new-aged energy farming. The more neighboring properties that can come together as part of the Project, the more likely their voices will be heard and the community will get behind their residents.

Third, it is important to plan for the future and what happens if the Lease is terminated or eventually runs its course. Landowners should look to include provisions in the Lease to cover the costs of the decommissioning and removal of the solar panels to restore the land.

Every landowner’s property and situation is unique, and every landowner considering a solar lease needs to fully understand the ramifications of such lease. Therefore, it is important to speak with an attorney knowledgeable about solar leases, so they can help light the path to a successful long-term revenue stream.

For more questions regarding Solar Land Leases, call Katrina Cox at 920-430-1900 .

Are You Preparing for the Right Time to Sell/Retire?

Fri, 15 Jan 2021 22:05:40 GMT

An interesting conversation occurred during a real estate closing earlier this year. My clients in their early 50s were talking with the seller who was retiring, and asked him, “what is the right age to retire?” The seller paused, and then responded by telling us that looking back on it, he wished he had retired 5 years ago. He is 65 and an unforeseen event, like COVID, had caused all he looked forward to doing in retirement to be put on pause, likely for 18 months or so. He was concerned about what his health would look like when he was 67 and if all those bucket-list trips would still be possible.

The seller’s words struck a chord with everyone in that room and should strike a chord with every business owner in their 50s reading this article. In talking with many business owners, the craziness that was 2020 has more of them coming to the belief that working until 65 isn’t the desired norm anymore. As such, starting exit planning early is key for a small business owner, as many times a substantial amount of their retirement nest egg will come from the sale of their business.

For the small business owner, maximization of value for their business is critical, but it does not happen overnight. While it is true someone can just wake up one day and decide to sell their business in short order and retire. Likely that person will be leaving money on the table at closing. To properly set up your business to maximize its value can take time, sometimes a couple years, but if you take the proper steps and work with the right team, you will hopefully put yourself in a position to have the retirement you dreamed of and check everything off that bucket list.

So, what items should a small business owner be looking at, generally? A first step, and sometimes the most important step, is to get your house in order. This can include making sure all of your company documents, including ownership records, contracts with key customers/vendors, agreements with employees, and financial records are all proper and in place. Unfortunately, we have seen deals be delayed, purchase prices reduced or even deals fall part due to these items.

Are your company records up to date, showing a clear history of ownership? Do you have contracts in place with the appropriate parties? Every buyer and their team of advisors are going to do due diligence in review of your business. A buyer will want to be sure that whomever is selling the business has the authority to do so. Also, as a part of due diligence, a buyer will look at contracts with key customers, vendors and employees. These can affect projections made by the buyer as to purchase price and buyer’s bank as to lending exposure.

Have you taken actions to help your company minimize income for taxes purposes (i.e. end of the year expenditures)? While not showing a profit is okay (and sometimes ideal) when it is your business, it can cause issues when looking to sell your business. For example, those actions may hurt how much a banker will feel comfortable lending, and thereby decrease the purchase price and/or make it so you have to seller finance part of the purchase. If maximizing the amount of money coming in on the day of closing is the most important thing to you, adjusting your thinking as to income (and taxes related thereto) well prior to selling the business may be needed.

These are just a few items that should be reviewed as a part of your business planning. To prepare a complete plan and set yourself up for a successful retirement, a small business owner should meet with a team of advisors to help prepare a strategy. This team should, at a minimum, include your attorney, accountant, financial planner and a business broker. The attorney will help you get your documents and contracts in order. The accountant can help you get your finances in order. Your financial advisor can help determine your retirement finance needs, and therefore what sale price you would likely need. Lastly, a business broker can offer invaluable insight as to how the market looks for your business now, what they see in the future, and overall things you should do to position your business to maximize a sale price.

It takes time to properly sell a business. You might not be looking to cash out and retire today , but you don’t want to leave money on the table when you do. So, start planning early so you can strike when the time is right.

Contact Mike Demerath at 920-430-1900 for questions regarding the sale of your business

Construction Contracts Cover COVID-19

Tue, 29 Sep 2020 22:04:30 GMT

Un-Mask Uncertainties: Ensure Your Construction Contracts Cover COVID-19

With the uncertainty of when the coronavirus pandemic and COVID-19 will cease to affect the day-to-day operations of businesses around the world, those especially in the construction industry can reduce their risks of breaching new contracts by addressing the novel coronavirus pandemic head on with specific provisions.

When the pandemic first began in the U.S., construction companies were left scrambling on how to handle employee safety, federal, state and local government guidance and mandates, supplier shortages, material price escalation, labor shortages and the like. Contracts in place when the first wave of the pandemic hit left construction companies wondering whether certain contract provisions protected them from the crippling work-flow effects of due to COVID-19. In particular, construction companies delved into contract provisions regarding delays, time extensions and force majeure events, i.e. acts of God, natural disasters, war, riots, or other unforeseeable events that neither party can control, to determine the allocation of risk and potential solutions to the inevitable delays due to COVID-19. While some contract clauses cast a wide enough net to encompass a contractor’s delay in services, even the most inclusive force majeure provisions that listed “epidemics”, “pandemics” and “other causes beyond the Contractor’s control” have the potential of leaving contractors out in the cold.

First, even if the contractor’s force majeure clause arguably covered the start of coronavirus pandemic and allowed the contractor an extension of time, most force majeure clauses do not account for an adjustment of the contract price in addition to the extension of time. This risks leaving the contractor stuck with the same contract price even with supplier shortages, material price escalation and an increase in costs to cover PPE for employees and subcontractors. Second, with the coronavirus pandemic being around for the foreseeable future, contractors should think twice before using their standard construction contract in jobs moving forward. This is due to the weakening argument that the pandemic continues to be a force majeure event that the contractor could not reasonably foresee.

So what should contractors do to prevent this issue and fairly inform their customers of the issues that could foreseeably occur? Face the subject head on with a provision directly addressing COVID-19.

Provisions contractors should consider, include:

Take the Time and Define

Contractors should make sure to define terms carefully, and link everything back to the coronavirus pandemic and the disease it causes. This includes addressing known issues that could affect the project, including, without limitation, federal, state and local guidance and mandates that have already been issued as well as unknown complications of COVID-19 that may give rise to new and unanticipated issues.

Address Delay and Pay

Contractors should look to strike a balance between what they know about COVID-19 when they enter into the new contract and the still unknown issues that may occur after the deal is struck that could cause delays. In separating known and unknown conditions due to COVID-19, contractors ensure their ability to request an extension of time and related contract price changes due to unknown conditions related to COVID-19, while customers can protect themselves from unfounded time extensions and contract price changes based on known conditions of COVID-19 that existed when the contract was executed. This benefits the customer, in that the contractor does not have to try and build in protection in the initial bid to compensate for potential COVID-19 issues, and gives comfort to the contractor that, if something does drastically change with COVID-19, they can be compensated accordingly.

Compliance with Guidance

Consider what occurs when the contractor is required to comply with COVID-19 related federal, state and local guidance that affect the worksite and the potential equitable adjustment needed to remain on the worksite once the contract is executed. Furthermore, look to tackle what occurs and remedies a contractor has if the customer chooses to suspend the project due to their comfort level or health, even if there is not governmental guidance that halts the contractor’s ability to perform the work.

Overall, it is for the benefit of both contractors and customers to unmask the uncertainties that COVID-19 has created. By contractors engaging with counsel and adding specific language to their construction contract to address each parties’ duties and responsibilities, contractors and customers gain transparency of what to expect allowing for new projects to prosper during these unprecedented times.

For more information, contact Katrina Cox at 920-430-1900 .

Different Ways to Leave an Inheritance

Tue, 29 Sep 2020 22:03:17 GMT

As you may expect or know from firsthand experience, estate planning is more involved than deciding who gets what when you pass away. Just as important as deciding who your beneficiaries are is deciding the method or vehicle through which those beneficiaries will receive their inheritance. A myriad of options exist, and this article delves into three common ways to structure an inheritance.

Outright

Giving beneficiaries their inheritance outright, in one lump sum, is arguably the easiest approach; after a decedent’s final bills and expenses are paid, assets are divided and distributed to beneficiaries who become legal owners of the assets at that time. This works well if the beneficiaries are mature and fiscally responsible. If beneficiaries are minors, less sophisticated when it comes to financial management or susceptible to undue influence, outright distributions are less desirable.

In Trust, Outright at a Certain Age or Upon Triggering Event

Assets left in trust for the benefit of a beneficiary are held, managed and distributed by a trustee in accordance with the trust’s provisions. Commonly, the provisions of the trust provide that when the beneficiary reaches a certain age, the trustee distributes the assets outright to the beneficiary, and the trust then terminates. Prior to termination, the trustee has the ability to make discretionary distributions to the beneficiary. Trusts of this nature are often found in estate plans of individuals who have minor children. Absent such trust provisions, Wisconsin law provides that assets for the benefit of a minor are held in a custodial account until the beneficiary reaches age 18 or 21. By including provisions in an estate plan that provide that the shares for beneficiaries are held in trust until a certain age – 25 is common – a parent is given some peace of mind that the beneficiary has a few extra years to hopefully mature and become financially independent before the trust assets are distributed outright. The ages for distribution can also be staggered over a number of years with distributions as a set percentage of trust assets. For example, a trust could provide that the beneficiary receives an outright distribution of one-third of a trust’s principal and accumulated income at age 25, one-half of the remaining principal and accumulated income at age 30 and the residue of the trust estate outright at age 35. A trust can also be structured to distribute outright to a beneficiary upon a triggering event, such as graduating from college, instead of when a beneficiary reaches a certain age. Distributions upon a triggering event are less common than distributions at a certain age, and extra care must be taken to address what happens to the trust assets if the triggering event is never achieved.

In Trust, Ongoing

A less common, but modern trend in estate planning, is found in trusts that are maintained for the lifetime of the beneficiary, without any mandatory distributions of principal and income. These trusts, sometimes referred to as dynasty trusts, provide for distributions of principal and income to the beneficiary during the beneficiary’s lifetime. Ongoing, discretionary trusts of this nature were previously viewed as restrictive to the beneficiary and burdensome in terms of continued maintenance and administrative expenses, but a number of benefits have surfaced under the law that make these trusts an appealing planning option for many clients. A key advantage of dynasty trusts is creditor protection; if the beneficiary cannot compel the trustee to make distributions, the assets are not available to creditors. Similarly, assets held in a dynasty trust are not available for division in the event of a beneficiary’s divorce. Inherited assets are not subject to Wisconsin’s marital property laws unless or until those assets become comingled with marital assets. Without a prenuptial agreement or other protections in place, inherited assets are often comingled in relatively short order. In instances where a beneficiary’s inheritance is held in a dynasty trust, the assets are not exposed to comingling and continue to maintain their identity as the individual property of the beneficiary. While the same result can be accomplished through a prenuptial agreement, many beneficiaries are reluctant to execute such an agreement, and many parents prefer to have more control over what happens to trust assets in the event of a beneficiary’s divorce or death. Standard dynasty trust language provides that upon the death of a beneficiary, the assets will continue to be held in trust for the benefit of the beneficiary’s lineal descendants. To ensure that beneficiaries have some independence and oversight, a dynasty trust can provide that a beneficiary can become a co-trustee or the sole trustee of his or her trust share at a certain age.

The best way to structure an inheritance depends on a number of factors, including the age and maturity level of the beneficiary, the size of the inheritance and various family dynamics. Naturally, these variables evolve over time, and as a result, the best method to leave assets to your intended beneficiaries may changes as the years go on. A sound estate plan is one that is tailored to your needs are reviewed on a regular basis.

For further information, contact Bridget M. Erwin at 920-430-1900 .

A Plethora of Planning Options: Different Ways to Leave an Inheritance

Federal Rehabilitation Tax Credit

Tue, 29 Sep 2020 22:00:14 GMT

REVITALIZE AND SAVE: FEDERAL REHABILITATION TAX CREDIT

Getting a blank canvas property in city centers is harder and harder to come by for developers. More often than not the city’s infrastructure is already well established, and instead of the “out with the old, in with the new” mentality, governments are looking to developers to utilize and restore older buildings in order to keep the small-town historic feel while still breathing new life into older communities.

With that desire in mind, the government has incentivized developers and investors to revitalize and save instead of remove and replace by establishing the Federal Rehabilitation Tax Credit, otherwise known as the Historic Tax Credit (HTC) which provides a dollar-for-dollar reduction in income tax owed, up to as much as 20% of qualified rehabilitation expenditures (QREs) for income-producing historic buildings.

As with any tax credit, there are certain requirements that must be met.

BUILDING AND REHABILITATION QUALIFICATIONS

First, the property must meet an HTC’s definition of a “building”. It must (1) be an enclosed structure usually covered by a roof, and (2) be depreciable. Depreciable buildings commonly include commercial or residential rental buildings, including, but not limited to, apartments, hotels, office buildings, warehouses, distribution facilities, sports facilities or any combination of the above.

Second, in order for a building to qualify for an HTC, the building must be certified by the National Park Service (NPS) as either (1) a building that contributes to the historic significance of a registered historic district, or (2) a building that is listed in the National Register of Historic Places.

Third, for the rehabilitation project to qualify for an HTC, the QREs incurred during the 24-month period ending in the taxable year in which the building is placed into service and usable for its particular purpose must exceed the greater of either $5,000 or the cost of acquiring the building prior to renovation.

Finally, the rehabilitation must follow the Secretary of the Interior’s standard for rehabilitation. This includes, but is not limited to, the preservation of the historic character and distinctive features, repairement of deteriorated historic features and if structures or decor are too dilapidated or deteriorated to save, comparable color, texture and other visual qualities of the new construction must match the historic nature of the building so as to not impair its integrity.

WHAT ARE QRES?

QREs are development costs in connection with the renovation, restoration or reconstruction of a qualified building. QREs directly relate to the size of an HTC for a particular project, given that an HTC equals up to 20% of all QREs incurred within the 24-month window of the rehabilitation process.

For example, if the QREs total $250,000 over the course of 24 months prior to the building being put into service, the individual/entity’s federal income liability would be reduced by $50,000. ($250,000 x 20% = $50,000)

QREs include repairs or replacement of structural components of a building, i.e. walls, partitions, floors, ceilings, windows and doors, chimneys, heating and cooling systems, plumbing, and also can include architectural fees, design fees, engineering fees, construction management costs and reasonable developer fees.

QREs do not include items like demolition and enlargement costs, building acquisition costs, parking lots, site improvements and landscaping, tax exempt use of the property and personal property.

WHO CAN CLAIM AN HTC?

An HTC is available to the taxpayer(s) or the entity who holds title when the QREs are incurred and placed into service. The credit may also be passed along to long-term tenants by a landlord of a property that incurs QREs and otherwise qualifies for an HTC.

RISK VS. REWARD

While when claimed properly the credit is advantageous to developers and investors, it is important to understand that in order to keep the credit from being recaptured later, particular rules must be followed. For example, developers and investors risk having to repay an HTC if any of the following occur: (1) change in ownership occurs prior to the building being owned for five years, (2) additional rehabilitation occurs that does not meet NPS standards, (3) the building goes out of service, is foreclosed on or sold during the first five years, (4) over 50% of the building is leased to a tax-exempt entity, or (5) if building is converted to personal use.

Overall, an HTC is a valuable federal income tax credit that when utilized effectively, can significantly reduce cost, increase the economic viability of a development for developers and investors, and revitalize your community without harming its unique historic integrity. If you are looking to take advantage of an HTC, have your financial and legal advisors analyze if the project size and purpose qualifies for an HTC and would make economic sense given its requirements.

For more information, contact Katrina Cox at 920-430-1900 .

Paycheck Protection Program Reform

Thu, 30 Jul 2020 21:58:32 GMT

PPP Reform: New rules on forgiveness, timing

Congress passed the Paycheck Protection Program Flexibility Act (“Act”) to make it simpler for small businesses and other borrowers to qualify for full loan forgiveness. President Trump signed it into law on Friday, June 5, 2020. The Act extended the amount of time in which businesses can use their loans and offered more flexibility on how to spend funds. One item that did not change was the application deadline. The deadline to apply for Paycheck Protection Program loans was and remained June 30, 2020.

The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, released in mid-June a revised loan forgiveness application for the Paycheck Protection Program (“PPP”). The SBA also released a new EZ application for forgiveness of PPP loans. To have their loan forgiven, small business owners must fill out an application, and submit it to the bank or lender that approved their initial request. The application focuses on criteria regarding the types of expenses that are forgivable. It also includes a step-by-step calculator for determining forgiveness eligibility.

The EZ application requires fewer calculations and less documentation than the full application and can be used by borrowers that, 1) are self-employed and have no employees; or 2) did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or 3) experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

The Act transformed the PPP in the following ways by:

Extending the deadline from June 30, 2020 to December 31, 2020 to rehire full-time equivalent employees for their salaries to count toward loan forgiveness.
Reducing the proportion of the loan proceeds that businesses must spend on payroll to be eligible for full forgiveness. 60% of loan proceeds must be spent on payroll costs like salaries and benefits, for up to $100,000 annualized per employee, while the rest can be spent on other allowable expenses. The former payroll spending requirement for loan forgiveness was 75%.
Extending the repayment period for non-forgiven PPP loans approved on or after June 5th to 5 years at 1% interest to repay the loan rather than the initial 2-year repayment period. The maturity date can also be extended for loans made before June 5th if the borrower and lender mutually agree to extend it to 5 years.
Expanding the duration of time (“covered period”) during which PPP recipients could spend the loan proceeds for payroll and non-payroll expenses and still qualify for loan forgiveness from 8 weeks from the time they received the first loan installment to 24 weeks or until December 31, 2020, whichever is first. However, borrowers with loans taken before June 5th can still choose to use the 8-week covered period.

Payroll expenses include covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums). Non-payroll expenses include mortgage interest, rent and utilities. Loan proceeds not used for qualifying purposes within the covered period are not eligible for forgiveness and must be paid back.

Specifying that loan forgiveness will not be reduced if there’s a reduction in headcount if borrowers can show that they were unable to rehire employees or hire similarly qualified employees for unfilled positions before December 31 or unable to resume normal business activity levels in that period because they were complying with health and safety guidelines for slowing the spread of the virus.
Codifying an earlier ruling providing safe harbor for business owners who made a good-faith effort, but were ultimately unable to return to the same level of pre-February 15, 2020 business activity.
Giving borrowers 10 months from the last day of the covered period, or alternative covered period, to apply for loan forgiveness.
Deferring principal payments, interest, and fees until the final forgiveness decision is made between lenders and the SBA. Borrowers can defer payments for up to 6 months, and recently updated forgiveness guidance allots banks 60 days to review forgiveness applications. The SBA gets another 90 days to make a ruling. Accumulated delays would otherwise mean some business could start payments on a loan that would eventually be forgiven.

Allowing employers to defer their portion of payroll taxes. The Act strikes wording in the Cares Act that bars business owners who receive forgiveness on their PPP loans from deferring their payroll taxes. Taxes incurred in 2020 are to be paid in 2 installments: Half is owed by December 31, 2021, and the other half is owed by December 31, 2022.

For more questions on the Paycheck Protection Program Flexibility Act contact Dave Dewick at 920-430-1900 .

The Secure Act

Fri, 24 Apr 2020 21:40:59 GMT

The Secure Act: A Whole New World for Retirement Assets

The recent enactment of the SECURE Act, which took effect on January 1, 2020, dramatically impacts IRAs, Roth IRAs and qualified plans (retirement assets). One of the most significant changes brought about by the SECURE Act is how quickly a retirement account must be liquidated by a beneficiary after the death of the retirement account owner. To fully understand the changes the SECURE Act brings, it is important to understand what the rules were under the “old law,” as the SECURE Act amended the old law, utilizing much of the same apparatus. Following the death of the retirement account owner, post-death Required Minimum Distributions (RMDs) of qualified retirement accounts were calculated based on whether the beneficiary was a “Designated Beneficiary” or a “Non-Designated Beneficiary.”

Simply stated, a Designated Beneficiary is an individual or trust that qualifies as a “see-through” trust. A Non-Designated Beneficiary is an estate, a trust that fails to qualify as a “see-through” trust or other “nonindividual” beneficiary (i.e. no measurable life expectancy). Prior to SECURE, qualified retirement accounts payable to a Non-Designated Beneficiary were subject to the “5-year rule.” The 5-year rule provides that if the owner dies prior to his or her Required Beginning Date (RBD) (previously age 70½ under the old law and now age 72 under the SECURE Act), all benefits must be distributed no later than the fifth anniversary of the owner’s death. If the owner dies on or after his or her RBD with a Non-Designated Beneficiary, prior rules provided that the Applicable Distribution Period (ADP) is the owner’s single life expectancy. The SECURE Act has had no impact on the payout rules as they relate to Non-Designated Beneficiaries.

The significant changes brought about by SECURE impact the payout rules for Designated Beneficiaries of qualified retirement accounts. Prior to SECURE, the ADP was based on the life expectancy of the beneficiary (or on Non-Designated Beneficiary rules if they proved more favorable). The SECURE Act largely replaces the life expectancy payout for Designated Beneficiaries with the “10-year rule.” The 10-year rule provides that all benefits must be withdrawn by the Designated Beneficiary within ten years of the owner’s death, unless one of the limited exceptions, discussed below, applies. The beneficiary has the ability to determine whether the distributions are staggered over those ten years, are taken all in year ten or are based on some other distribution schedule so long as all benefits are withdrawn by December 31 ^st of the ten-year anniversary of the owner’s death. Failure to withdraw all assets in the retirement account by the deadline imposed by the 10-year rule results in a 50% tax on the missed distribution. In such cases, the required distribution continues to be 100% of the account balance in subsequent years, with the 50% tax penalty accruing each of those subsequent years until the account is entirely liquidated.

The SECURE Act creates a new class of beneficiaries, called “Eligible Designated Beneficiaries.” Eligible Designated Beneficiaries are not subject to the 10-year rule imposed upon other Designated Beneficiaries. Instead, these Eligible Designated Beneficiaries can benefit from traditional life expectancy payout rules, subject to certain exceptions:

Spouses: Spouses named as beneficiaries of qualified funds can still use the life expectancy payout.
Minor Child: Minor children of the owner are able to take advantage of the life expectancy payout until they reach the “age of majority,” at which time the 10-year rule is triggered.
Disabled Persons: Disabled individuals are entitled to the life expectancy payout. Under SECURE, a “disabled individual” is one who is “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.”
Chronically Ill: Individuals deemed “chronically ill” are likewise entitled to the life expectancy payout. A “chronically ill” person is one who has been certified by a licensed health care provided as (i) being unable to perform (without substantial assistance from another individual) at least two activities of daily living for a period of at least ninety days due to a loss of functional capacity; (ii) having a level of disability similar to that described in (i) above; and (iii) requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
Not More Than 10 Years Younger: The life expectancy payout applies where a sole named beneficiary is not more than 10 years younger than the owner.

The SECURE Act, no doubt, has turned planning for retirement assets on its head. From an estate planning standpoint, we are being proactive where we can and are reviewing existing plans where possible. In instances where retirement assets are flowing through a trust, for example, many trusts won’t work as they were originally intended. In some such cases, greater latitude and flexibility may be given to trustees by amending certain trust provisions. That said, there is no “one-size fits all” approach to planning for retirement assets post-SECURE, and there is no better time than the present to understand how the SECURE Act may affect you and your family.

For more information contact Bridget Erwin at 920-430-1900 .

Now is the Perfect Time to do Some Long-Term Planning

Wed, 22 Jan 2020 21:39:04 GMT

During the past few months you have likely seen people doing the 10-year challenge where they post a photo from the end of the 00s and one from the end of the 10s. If you do that challenge in in 2029, what will it look like for you and your business? A new decade has dawned, so, in addition to figuring out your goals for the next year, it is the perfect time to do some long-term planning for your business.

How do you plan to grow your business in this decade? One way we are seeing our clients addressing this issue is through either acquiring competitors within their current business territory or acquiring similar businesses outside of their current territory in order to expand their footprint. In today’s low unemployment economy, it is tough to find skilled employees . These types of acquisitions allow your business to grow by obtaining competent employees and a built-in customer base. There are also efficiencies of scale that can be achieved. If acquisitions are not available, consider expanding your service or product line to items complimentary to current offerings. You already have a customer base that may benefit from additional offerings.

If you want that picture in 2029 to be you sitting on a beach without worrying about employees or other business matters, then you need to start taking steps over the coming years to make that a reality. For many business owners, the business provides the ability today to live a comfortable life with the current income generated from the business. Many business owners look at the sale of their business as their retirement plan as well. Businesses do not get ready for a sale overnight, so you need plan your exit strategy, and sometimes this involves multiple strategies.

Is your business a family business that you want to pass to the next generation? If so, the luxury of the family transition is that it is something that can (and usually should) be planned to take place over time. You should work with your team of advisors (accountant, attorney, banker and financial advisor) to develop an effective strategy that provides for the business transition in a smooth, tax effective way which allows both financial certainty for you and does not cause financial hardship on the business.

Does your business have one or more amazing employees that you see some of yourself in? Do they have the desire and do you think that in the coming years they could be ready to take over the business? If so, you need to work to (1) keep them as your employees; and (2) determine a path to full ownership that works for all parties involved. This too is usually a process that takes place over time, since, unless you want to seller-finance the entire sale, you may need to work with your team of advisors to provide for some level of ownership/equity that the employee(s) could then use to obtain a loan from your bank to purchase the remaining portion of your ownership.

The other exit strategy to always keep as a part of the plan is a possible sale to an outside party, perhaps someone that is in growth mode as described above. The great thing about keeping this option as a part of the plan is that some of the prep work you are going to do to maximize the sale value of your business are steps that also benefit you in the short-term. Areas to look at will vary depending on the type of business, and again, this is where working with your team of advisors, this time including a business broker, is so important. How long are your current contracts with customers and/or suppliers/distributors? In any sale, especially if it is going to be to a competitor, the longer the contract, the better for maximizing value. How detailed is your customer information? For example, if your business is such that you install products that require/should have routine maintenance or you provide services on a recurring schedule, does your customer database have that information and ability to alert you when you should reach out to the customer? In service businesses the customer list is often the main thing you are selling, so any way you can find to optimize the value that can be obtained from that, you will in turn maximize the value of your business both currently and long-term.

A high school history teacher of mine used to always say – “if you fail to plan, you plan to fail”, so work with your team of advisors to get your plan in order and help ensure that the actual picture you take in 2029 is what you want it to be.

For more information contact Mike Demerath at 920-430-1900 .

Getting A-HUD In Rental Properties

Tue, 26 Nov 2019 21:37:28 GMT

Getting A-HUD in Rental Properties: In 2018 alone, 570 insured mortgages totaling over $8 billion in endorsements were administered for multifamily loan projects by the U.S. Department of Housing and Urban Development’s (“HUD”) Federal Housing Administration (“FHA”). Since HUD shows no signs of slowing down, now is the time that owners, operators and potential purchasers of multifamily properties learn about the benefits of multifamily loan insurance programs, particularly those offered under Section 223(f) of the National Housing Act of 1934 (“NHA”), as discussed below.

The FHA was created under the NHA to improve housing standards by creating a financing system that provided insurance for mortgage loans to help stabilize the housing market. When HUD was created as an agency in 1965, the FHA became part of the organization and focused on residential properties, and overall management of HUD’s multifamily housing programs. In fact, after the 2007-2010 Housing Crisis, the FHA became one of the largest insurers of home financing in the U.S.

While more entities in the industry are taking advantage of HUD’s FHA 223(f) program, it is still widely misunderstood as being only available for low-income housing or non-profit organizations. In reality, HUD’s FHA 223(f) program offers mortgage insurance to single-asset, non-profit and for-profit entities to facilitate the funding necessary to refinance or acquire market rate, affordable or rental assisted apartment multifamily properties.

In order to qualify for the program, certain requirements must be met:

The property must contain at least 5 residential units with complete kitchens and baths.
The units must have been completed or substantially rehabilitated for at least 3 years prior to the date of application for HUD’s FHA 223(f)-insured loan.
The property must achieve an average physical occupancy of 85% for a period of 6 months prior to application submission through the final endorsement.
Non-critical repairs on the property must be completed within 12 months of loan closing.
The economic life of the property must last long enough to allow for a 10-year mortgage.
The mortgage term cannot exceed 35 years or 75% of the estimated life of the physical improvements, whichever is less.
Commercial and retail space must be limited to the lesser of 20% of the net rentable area or 20% of the effective gross income.

There are a number of benefits that an owner can enjoy by being part of the HUD’s FHA 223(f) program. These include, but are not limited to, a loan term up to 35 years fully amortized; a fixed interest rate; the loan is non-recourse, which means that if a borrower defaults on the loan the lender can only recover the property, rather than also being able to go after the borrower’s personal assets; the loan is fully assumable, which allows the mortgage to be transferred from the current owner to a buyer without obtaining a new mortgage with HUD approval and a 0.05% fee; and there are high loan to value ratios (“LTV”) of 80%-90% depending on the type of property and reasoning for the loan.

The benefits above are important, but as with any action a person takes, other considerations must be examined. The cost to apply and obtain the loan is something that entities need to be aware of and understand to fully weigh the option of financing or refinancing a multifamily property project. For example, there are application fees, inspection fees, placement fees, deposits, closing costs (title company and attorney fees) and mortgage insurance premiums.

Also, the timing on HUD’s FHA 223(f)-insured loans from application to close generally takes 100-150+ days, as compared to more standard loan options. Additionally, while terms are negotiable, HUD’s FHA 223(f)-insured loans often include a lockout period for any prepayment, followed by an 8-10% penalty, declining 1% per year until there is no longer a penalty. Further, properties requiring substantial rehabilitation are not eligible for mortgage insurance under the program. Lastly, HUD’s FHA 223(f)-insured loans require submission of annual operating statements for audit and a Project Capital Needs Assessment every 10 years.

If you are a property owner with larger multifamily properties, it is important to consider HUD’s FHA 223(f)-insured loan and examine your situation, project, and goals to see if you too can take advantage of the program and get A-HUD in an ever-increasingly competitive market. For further information contact Katrina E. Cox at (920) 430-1900 .

Estate Plan Titling

Tue, 26 Nov 2019 15:34:53 GMT

After years of putting off estate planning, you’re feeling particularly accomplished as you leave your attorney’s office with a signed Will or Trust. Another item off the to-do list, perhaps, but if you or your attorney have not taken steps to ensure your beneficiary designations and the titling of your assets align with the language of your estate planning documents, your work isn’t done. Simply stated, beneficiary designations and certain titling methods trump the language of a Will or a Trust.

A Will only controls the disposition of assets passing through probate. Probate assets are those that have no joint owner or beneficiary designation. For example, if you have a Will that leaves everything to your four children, but your best friend is still named as the beneficiary of your life insurance policy, your children are out of luck. The proceeds of the life insurance policy will be paid directly to your friend without your children having any rights in or claim to the proceeds.

From a titling standpoint, the same unintended result often occurs. Let’s revisit your Will that leaves everything to your four children. You love them equally and intend to treat them the same after you pass away. But during your lifetime, your oldest child is the one that lives in closest proximity to you and to helps you with your banking affairs. Because it’s convenient, you add your oldest child to your checking account as a joint owner. Doing so ensures that he can write bills, access your account online and handle your day-to-day financial needs. But when you pass away, what happens to those funds is governed by Wisconsin Statutes Section 705.04(1), which provides, in relevant part, that the remaining assets belong to the surviving owner “unless there is clear and convincing evidence of a different intention at the time the account is created.” Absent such clear and convincing evidence, which is difficult to ascertain and establish, as a joint owner, the balance that remains in that account upon your death legally belongs to your oldest child. The language of your Will that directs that everything be divided equally between all of your children doesn’t control, and your other three children may have no legal right to the remaining funds. In addition, because that bank account is not subject to probate, there is no obligation that your son use it to pay funeral expenses, medical debts or to satisfy any other creditors that may remain at your death. Barring few exceptions, creditors are limited to recover from estate assets only. Of course, your son may freely elect to “do the right thing” by using the funds to pay bills and share the balance with his siblings, but that decision is entirely up to him and often serves to strain family relationships.

The same holds true for Revocable Trusts. If you have established a Revocable Trust during your lifetime, often with the primary objective of avoiding probate at your death, but you or your attorney have not taken steps to retitle your assets in the name of the Trust or change beneficiary designations on assets to name your Trust as beneficiary, the Trust will not automatically receive those assets at death. A probate will likely be necessary to get those assets to your Trust and ultimately to your intended beneficiaries. Similarly, if you have a Revocable Trust for the benefit of your four children at your death but you still have that life insurance policy naming your best friend as the beneficiary, your children will not see any of the proceeds from that policy.

As part of a comprehensive estate plan, your attorney should work with you to ensure that assets are retitled and beneficiary designations are updated, as appropriate, to coordinate with your preferences and estate planning documents. That oftentimes requires a team approach, but until all assets have been retitled or beneficiary designations updated, the estate planning process and your goals are not fully accomplished.

For further questions, please contact Bridget M. Erwin at (920) 430-1900 .

Titling is Everything: The Often Overlooked Key Piece of Estate Planning

Personal Guaranties

Tue, 19 Mar 2019 15:28:49 GMT

It is quite common for family business owners to have to personally guarantee certain indebtedness of the business owed to its lenders, most often indebtedness owed to conventional financial institutions (i.e., banks, credit unions, etc.). Many business owners, who are also guarantors of the debt of the business, do not realize that, if the lender exercises its rights and remedies with respect to the indebtedness, such lender is typically not obligated to first proceed against the business (i.e., the borrower) to collect the debt or against the collateral securing such indebtedness prior to proceeding against the guarantor for payment. Furthermore, if the lender exercises its right to enforce the guaranty against the guarantor, the guarantor may be obligated to pay more than the guarantor’s proportionate share of the indebtedness. While a guarantor who pays the indebtedness pursuant to the guaranty is entitled to contribution payments from the other guarantors, the law about the relative proportion of the loan that each guarantor is obligated to pay may be different from what the guarantors may believe or would have agreed to had they understood the issues and the risks related to the guaranty. As a result, it is often in a guarantor’s best interest to set forth the guarantor’s right to contribution in a written agreement among the guarantor and any other parties against whom the guarantor would like to seek recovery.

For example, let’s assume there are three (3) members of a limited liability company, which borrows $1,000,000 from a bank to finance a purchase of a piece of equipment, and each member signs a guaranty, whereby they agree to jointly and severally be reliable for the entire loan, and that the loan goes into default, and the lender then demands payment of the loan from the guarantors. Then, assume that one of the guarantors, who owns only a 40% ownership interest in the company, pays the entire loan balance, and then asks the other guarantors to pay the paying guarantor their fair share of the amount that the guarantor paid to the lender. Under common law principals, that paying guarantor may be entitled to repayment of part of the amount paid to the lender. However, the amount that the paying guarantor is entitled to recover from the other guarantors depends on a number of factors. Absent a written Contribution Agreement among the guarantors, the guarantors may believe that they are each only liable up to the portion of their percentage ownership interest in the company. However, unless agreed to otherwise in a Contribution Agreement, common law will typically provide that each of the three (3) guarantors are liable for one-third (1/3) of the debt, despite the fact that their ownership interest in the company may be greater or lesser than one-third (1/3). While courts have held that the paying guarantor would have a claim against the non-paying guarantors for the amount that the paying guarantor paid in excess of his fair share, the courts have also held that each member’s fair share is to be measured against the amount of the indebtedness, not the amount of any settlement reached between the company, the guarantors and the lender. Therefore, if a paying guarantor is responsible for 40% of the indebtedness, but the amount of the settlement was less than 40% of that indebtedness and the paying guarantor paid what equated to the entire settlement amount, that paying guarantor did not pay more than his 40% of the indebtedness, and, therefore, the paying guarantor would not have a claim of contribution against the other guarantors.

Taking into account the uncertainties as referenced above, guarantors may want to strongly consider entering into a written Contribution Agreement with the other guarantors. The typical Contribution Agreement should include as parties, not only the guarantors, but any other party against whom any or all of the guarantors wish to recover, including possibly any owners of the business who may not be guarantors. Essentially, the Contribution Agreement would provide (a) for a determination or definition of what constitutes a guarantor’s fair share of the indebtedness, (b) that the guarantors would agree to reimburse each other for any payments made by a guarantor on the borrower’s indebtedness in excess of the paying guarantor’s fair share, and (c) that the guarantors would (i) pay for the defense of the paying guarantor, (ii) pay costs of enforcement of the Contribution Agreement by the paying guarantor, and (iii) pay interest on any and all amounts owing under the Contribution Agreement. A guarantor’s fair share can be based on a number of factors but often is determined based on (a) the total amount of the indebtedness at issue or (b) the total amount of guaranty payments, then either (x) divided by the number of guarantors or (y) multiplied by the guarantor’s percentage ownership interest in the business. In the event that any of the guarantors become insolvent or die, the Contribution Agreement should expressly provide for a recalculation of the fair shares because such guarantors would be unavailable to contribute.

In conclusion, personal guaranties are often not what the guarantor may think they are and when multiple parties guarantee a loan or other obligation, executing a Contribution Agreement may be a wise decision, particularly since many guarantors are under the misguided understanding that they will only be responsible for their share of the indebtedness based on their proportionate ownership interest in the business.

Contact David P. Dewick at 920-430-1900 for more information.

Personal Guaranties: Are They What You Think They Are?

GREAT COMMUNICATION

Tue, 19 Mar 2019 15:27:20 GMT

As we all know, superior client/customer service is tremendously important, no matter what the industry or profession. However, during economic times when competition among businesses for customers/clients is high (like now), the level of client/customer service you provide is paramount to the success of your business. The services a law firm provides are not much different, at their heart, than those provided by other businesses in the service sector and, undoubtedly, the most important factor in providing unrivaled client or customer service is great communication. Below are a few client/customer communication tips that can be utilized to separate your business from the business of your competitors. While some of these may be obvious, they are important enough to warrant repeating:

Be a good listener . Actively listen and become engaged in the client’s or customer’s project or problem. By listening attentively, you will be better equipped to identify and anticipate the client’s or customer’s needs.

Oftentimes, the client’s needs are more emotional than logical. In the legal profession, as well as other industries and professions, a practical solution, rather than a legal or technical one, may more appropriately address the client’s or customer’s needs.

Under-promise and over-deliver. Give the client/customer more than what that client/customer expects. Provide a reasonable estimate of the time it will take to complete a project and then deliver before the deadline.

This is akin to “doing what you say you will do.” Keep your promises and do what it takes to deliver the services promised, by or before the deadline promised, no matter what it takes.

For example, if our firm says it will draft and deliver a document by Monday, we make sure that happens, even if it means working over the weekend or late into the evening. Reliability is key to delivering outstanding service and maintaining a strong client/customer relationship.

Accessibility . Be accessible. Return phone calls and reply to emails the same day as receipt. Sometimes you may not have availability to discuss the client’s or customer’s problem at length. However, oftentimes the most important point for the client or customer is not that they have their problem addressed immediately, but for their problem to be acknowledged by you. At a minimum, call back or send an email and schedule a time to talk in more detail.

Stay in regular contact with the client/customer. Continually update the client or customer regarding the project for which you were engaged. Clients/customers are busy as well and do not have time to continually follow up. Make a conscious effort to keep the client/customer informed.

Sometimes it’s enough to simply say there is no update. The client/customer wants to know their project has not been swept aside for some other matter. With today’s prolific use of electronic messaging, there is no excuse for a client/customer to be “out of touch”.

Explain what happens next and when . Help the client/customer understand the process and the timing for the project, not only as to the completion date, but also next steps. Clients/customers should understand key project milestones and when you expect those milestones to be attained.

Despite the numerous deadlines involved with particular matters, clients/customers may perceive that not much is happening between those deadlines. Help them understand what is going on behind the scenes.

Every business’s most important asset is its clients/customers. When a client or customer is properly communicated with and knows what to expect, that client/customer usually is a very satisfied client/customer. When you are able to satisfy or exceed your client’s/customer’s expectations, that client/customer not only will continue to do business with you, but will inevitably refer others, and your business will reap the benefits of the efforts you took to provide superior client/customer service.

David P. Dewick is a business and transactional attorney with Hager, Dewick & Zuengler, S.C.

"Great Job" Begins with Great Communication

EMPLOYEE RETENTION

Tue, 19 Mar 2019 15:25:10 GMT

In today’s employment climate there are a variety of reasons why it is difficult to retain key employees who are important to the success of your business. Prudent employers realize these challenges and find creative and effective ways to retain those key employees. One such vehicle for doing so is a Stock Appreciation Plan.

Purpose

The purpose of a Stock Appreciation Plan (“Plan”) is to provide select key employees with an incentive to remain with and to help grow the employer’s business. The Plan allows the employer to grant participants “equity participation units” (“EPU(s)”). These EPU(s) become vested over time and promote an ownership mentality by granting participants the opportunity to benefit financially, based on the growth and appreciation of the business.

Administration

Utilizing a corporate entity structure as an example, the Plan is administered by the employer’s Board of Directors (“Board”). The Board determines which key employees are selected to participate in the Plan, how many EPU(s) are to be granted and when such grants are made. Further, the Board is responsible for setting forth the rules regarding the administration of the Plan.

Participants

The participants selected by the Board may or may not also be officers or directors. Directors who are not employees are ineligible for inclusion in the Plan. When granting EPU(s), the Board may include or exclude those participants who were previously granted EPU(s) under the Plan. Upon the granting of EPU(s), each participant must execute a separate agreement with the employer, agreeing to participate in, and be bound by the terms of the Plan.

EPU(s)

EPU(s) granted to Plan participants do not provide legal ownership in the employer, nor do they provide management or voting rights or entitle participants to any dividends or distributions. Instead, EPU(s) provide participants the right to receive payments upon certain triggering events and based on the number of EPU(s) in which the participant is vested.

EPU(s) are valued at the time they are granted to the participant and are then revalued, annually, after the close of each fiscal year. The value of the EPU(s) is most often based on a pre-determined formula, typically provided by the employer’s accountant.

The EPU(s) become fully-vested over a period of time determined by the Board, typically based on a participant’s years of service and a schedule set by the Board. Delayed vesting provides participants with additional incentive to remain with the employer and remain committed to its success.

Forfeiture

Under the Plan, the employer may specify the conditions upon which a participant forfeits rights and benefits related to the EPU(s). A participant will oftentimes forfeit allrights and benefits, whether vested or not, (a) upon the employer’s termination of the participant’s employment for cause, (b) in the event the participant violates the terms of the non-competition provisions set forth in the Plan, or (c) upon voluntary termination of employment by the participant (except, upon retirement on or after a certain age).

Death or Disability

If a participant dies or becomes disabled prior to the termination of employment, the participant typically becomes fully vested in the participant’s EPU(s). Upon a participant’s disability or death, the employer will normally pay to the participant or to the participant’s designated beneficiary, as the case may be, the appreciated value of the EPU(s).

Change in Ownership

In the event the employer sells substantially all of its assets or the employer’s principals sell a majority of the ownership interests in the business to an unrelated third party, the participant typically becomes fully vested in the participant’s EPU(s), so long as the participant remains with the employer through the closing date of the sale. In such instance, participants are normally entitled to receive payment for the participant’s EPU(s) based on the net sales value being received by the employer or its owners.

Payment of Plan Benefits

Upon certain triggering events (which may vary from plan to plan), such as a participant’s death, disability, retirement on or after a certain age, or involuntary termination without cause, the participant typically is entitled to receive payment for the vested portion of the participant’s EPU(s). Payments are made according to the terms of the Plan and the total payment due is most often based on the appreciation value of the EPU(s) calculated from the time the EPU(s) were granted to the time of the triggering event.

Agreement Not to Compete

In consideration for the granting of the rights and benefits under the Plan, the employer most often requires the participant to agree not to (a) compete with the employer, (b) solicit the employer’s customers or employees or (c) disclose any of the employer’s confidential information, for a fixed period after the termination of employment. In the event a participant violates any of the foregoing covenants, the employer typically will have the right to permanently cancel, terminate and void the participant’s benefits under the Plan.

Conclusion

If an employer is looking to reduce the risk of losing its key employees to competitors, the Stock Appreciation Plan is a very flexible tool to assist in reducing that risk and is becoming more commonplace among business owners.

Call Dave Dewick at 920-430-1900 to find out more information.

Employee Retention is "Key" for Employers

NONJUDICIAL SETTLEMENT AGREEMENTS

Tue, 19 Mar 2019 15:23:05 GMT

By definition, “irrevocable” means “unable to be repealed or annulled; unalterable.” Historically, irrevocable trusts lived up to their name – they were permanent and unmodifiable absent a court order. Obtaining a court order to modify an irrevocable trust can be expensive and time consuming. In 2014, Wisconsin adopted the Uniform Trust Code, which brought about sweeping change to trust laws as we had previously known them. One such change is the ability to modify irrevocable trusts without a court order through the use of a nonjudicial settlement agreement (“NJSA”).

As planners, we aim to address a myriad of scenarios in the trust documents we draft. But without the proverbial crystal ball to aid us, we cannot guarantee our clients that an irrevocable trust will withstand changes in tax laws, family dynamics or other unforeseen events that may lie ahead. Using an NJSA, however, irrevocable trusts can be modified to address a multitude of scenarios. Specifically, Wisconsin Trust Code authorizes an NJSA to address matters including (1) interpretation or construction of the terms of a trust, (2) approval of a trustee’s report or accounting, (3) direction to a trustee to refrain from a particular act or granting a trustee a specific power, (4) resignation or appointment of a trustee, (5) transfer of the trust’s situs and governing law and (6) liability of a trustee for an action relating to a trust.

One of the most common and versatile uses of an NJSA is to eliminate a family trust (also known as a “credit shelter trust”) that is often established at the death of the first spouse in many living trust agreements. In 2019, the federal estate tax exemption equivalent is $11,400,000, which means that the estates of unmarried individuals dying in 2019 are subject to federal estate tax only if the value of the decedent’s assets exceed that sum. The current federal estate tax exemption equivalent is much higher than in the year 2000, for example, when it was just $675,000. To minimize the imposition of federal estate taxes at the second death, many trusts created in the 1990s and early 2000s called for the mandatory creation and funding of a family trust. Given the significant increase in the exemption equivalent amount, these family trusts may no longer be needed. By invoking the use of an NJSA, the otherwise irrevocable family trust can be terminated. As a result, all trust assets can be held by the surviving spouse, entitling those assets to a step-up in basis at the surviving spouse’s death, such that no capital gains tax will be due if the remainder beneficiaries sell the trust assets shortly thereafter. Further, the elimination of the family trust will eliminate record keeping and tax return compliance on an annual basis.

If the settlor (the person creating the trust) of an irrevocable trust is living, an NJSA must be signed by the settlor, the trustee and all beneficiaries of the trust. If the settlor is deceased, an NJSA can be signed by the trustee and all beneficiaries of the trust. It is important to note that if the settlor of the trust is alive, the scope of an NJSA can be broader. Namely, where a settlor is living, a modification to an irrevocable trust through an NJSA may generally be done for any purpose. If the settlor is not living, the modification cannot violate a material purpose of the trust. For example, many trusts call for staggered distributions to beneficiaries (e.g. one-half at age 25 and the balance outright at age 30). The settlor’s desire to provide for the beneficiaries over a span of time – perhaps to afford the beneficiaries an opportunity to learn to financially support themselves – is a material purpose of the trust. If the settlor is alive and consents to the same, an NJSA can be used to modify the trust to provide for outright distributions to the beneficiaries at age 21. If the settlor is not living, an NJSA cannot be used to bring about such a material change.

While nonjudicial settlement agreements afford practitioners yet another tool in their estate planning toolkit, they are just one option of many, should not be entered into lightly and should be considered in the context of the estate plan as a whole.

For more information, contact Bridget Erwin at berwin@hdz-law.com

Nonjudicial Settlement Agreements: A Mulligan for Irrevocable Trusts

Updating Your Operating Agreement

Tue, 19 Feb 2019 21:20:33 GMT

As you contemplate signing up for a new gym membership to set your 2019 health goals, you may also want to consider hitting a similar refresh button for your business. Goals and expectations change over time, much like your Limited Liability Company (“LLC”). Similarly, your Operating Agreement warrants an annual review and potential amendment. The following are a few key signs that your Operating Agreement may need to be updated:

Changes in Members.

Throughout the course of your business, Members may join and/or leave the LLC. It is imperative that these changes are reflected in your Operating Agreement.

First, when new Members are added, you will want to ensure that those Members are bound by the same Operating Agreement which the original Members previously agreed to. This evidences that any new Members have read, understood and agreed to be bound by the Operating Agreement, which in turn, protects any new or existing Members.

Second, if any new or existing Members marry or divorce, the Operating Agreement will need to be updated to reflect those changes. This will confirm that the spouse is bound to the terms of the updated Operating Agreement.

Third, it is imperative that the Operating Agreement reflect the current LLC ownership interest. This becomes critical when calling meetings, making decisions, and making capital contributions or distributions. You may also need to provide a lender with documentation of current ownership.

2. Law Based Changes.

It is always important to make sure your Operating Agreement reflects the current laws on both federal and state levels. An example of a federal tax law change for LLCs taxed as partnerships relates to the Bipartisan Budget Act of 2015 (“BBA”). The BBA centralizes procedures for IRS audits for partnerships for the tax years beginning on or after January 1, 2018. The BBA replaces the “Tax Matters Partner” with a “Partnership Representative” (“PR”) and gives the PR sole authority to make certain elections and decisions. This must be addressed by the LLC’s Members and updated in the Operating Agreement to ensure Members maintain control of their LLC’s tax audit regime. If the LLC chooses not to appoint a PR, the IRS has the ability to appoint an individual they choose to be the LLC’s PR, regardless of whether that person is a Member of the LLC.

Additionally, it is important to address and account for the fact that audit adjustments under the BBA will be assessed to the entity in the year the audit is completed. Therefore, it is important to update your Operating Agreement to ensure that the Members of the audited year are responsible for those tax adjustments. This can protect current Members from bearing the tax burden of past Members.

3. Circumstance Changes.

Members’ personal circumstances may change, leading to the need to address those issues with respect to the LLC. Updating your Operating Agreement will help protect the Members of the LLC. For example, as the LLC ages, inevitably, so do the Members. The desire for the Members to transfer their shares into a trust for estate planning and privacy purposes could become an issue if the Operating Agreement restricts such transfers. Therefore, the Members should consider an amendment to their Operating Agreement, if needed, to provide for an exception for revocable trusts, while still maintaining the applicability of other restrictions.

Along the same lines, it is important to plan for the next generation. Do the Permitted Transferees upon a Member’s disability and/or death still reflect the wishes of the Members? Does the Operating Agreement reflect the current valuation of the LLC when transfers do occur? While some Operating Agreements provide a fail-safe for when there is no current valuation of the LLC, Members can determine and control of the LLC’s valuation by updating the LLC’s value on a regular basis, instead of allowing a third-party to decide the LLC’s value after a transfer situation occurs.

Additionally, you may need to modify your Operating Agreement to address non-compete restrictions for Members. Over time, your LLC may transform its business type and/or locations, and therefore, the initial non-compete terms may no longer reasonably protect the LLC’s business.

In closing and as the above examples illustrate, it is imperative to take the time to review your Operating Agreement and speak with your attorney and accountant about any needed or desired updates to your Operating Agreement. Reviewing your Operating Agreement annually will go a long way towards making sure that you appropriately address any issue before it affects you and your LLC.

New Year, New You; It’s Time for Review: Updating Your Operating Agreement

Real Estate Condition Report

Tue, 19 Feb 2019 21:17:41 GMT

When selling a home, barring a few exceptions, most Sellers will need complete and sign a Real Estate Condition Report (RECR) . This report is meant to disclose the condition of your home and whether you are aware of any particular issue or defect. Prior modifications have left the RECR confusing and ambiguous, but the recent passage of 2017 Wis. Act 338 has given the RECR a much-needed remodel, creating a clearer and more organized list of questions for the Seller to answer.

What stays the same?

The new RECR, which applies to any transaction after July 1, 2018, continues to be a requirement for residential sellers in transactions where a realtor or attorney are involved, for sale by owner transactions, and in most transfers of property. Furthermore, those situations that had been exempt from requiring completion of the RECR will continue to remain exempt. This includes (1) real estate that has never been inhabited (i.e. new construction); (2) transfers traditionally exempt from the real estate transfer fee such as between spouses and probate transfers; and (3) sales by fiduciaries appointed by or supervised by the court, including trustees and personal representatives that have never occupied the property.

What changes?

One of the most noticeable changes between the old RECR and new RECR is that the Seller is now prompted with a list of questions to answer instead of statements that need to be affirmed or denied. This creates a better understanding of what is asked, and the new checkboxes better represent the Seller’s answers. In addition to the questions being more understandable, most of the questions are now followed with examples to help the Seller answer as accurately and honestly as possible.

For example, the old RECR stated the following:

“I am aware of defects in the roof.”

The new RECR is much more illustrative and states:

“Are you aware of defects in the roof? Roof defects may include items such as leakage or significant problems with gutters or eaves.”

In addition to the remodeling of the questions themselves, there are a number of changes which help organize the document in a concise and easy to use manner for the Seller. First, the questions are now organized into separate sections. These sections include structural and mechanical, environmental, wells, septic systems, storage tanks, taxes, special assessments, permits, and land use.

Second, each section now has its own explanation area for any “yes” responses. This allows the Seller to explain “yes” responses right away, as opposed to the old RECR in which all “yes” responses needed to be explained at the end of the form. The new RECR eliminates the Seller’s need to go back through the form after completion to properly address the “yes” responses. This aids in filling out the form correctly the first time.

Third, the new RECR provides a notice to Sellers that real estate licensees are not allowed to give advice or help fill out the form. Although real estate licensees have never been able to aid Sellers in prior versions of the RECR, the new RECR clearly states that “[r]eal estate licensees may not provide advice or opinions concerning whether or not an item is a defect for the purposes of this report or concerning the legal rights or obligations of parties to a transaction.”

Lastly, it is important for Sellers and real estate agents to recognize that several disclosures have been added to the new RECR. The new disclosures address the following:

Rental items such as water softeners;
Water quality issues, including lead levels;
The manufacture of methamphetamine and other toxic substances;
The existence of conservation easements;
Restrictive covenants and deed restrictions;
Use value assessments and other relevant agreements and programs;
Burial sites;
Insurance claims within the last five (5) years;
Agreements that bind future owners (leases, electric cooperatives, etc.); and
The amount of time the owner has owned the property.

Overall, the changes to the RECR has accomplished a task most remodels strive for in today’s real estate market. It has knocked out the forest green walls and orange-hued kitchen cabinets of the 90’s from which the first disclosure reports were built, and created an open concept form that is easier for both the Seller and Buyer to understand.

Real Estate Condition Report: A Much-Needed Remodel

Family Owned Business

Wed, 05 Sep 2018 15:16:44 GMT

Did you know that only 30% of family-owned businesses successfully pass from the 1 ^st generation to the 2 ^nd generation and only 12% of family-owned businesses successfully pass from the 2 ^nd generation to the 3 ^rd generation? As business and estate planning attorneys, we often meet with clients that want to pass the family business down to the next generation. As consideration is given to transitioning the business to the younger generation, below are some issues to keep in mind that may help your family business avoid being on the wrong side of the above statistic.

As an owner of any business, it is always important to be thinking about a succession plan. This is even more important if your goal is to keep the business in the family rather than selling to key employees or an outright sale to third parties. It is important for the senior generation to prepare the child(ren) so they are ready to succeed when the time comes. This all starts by identifying the child(ren) that will be the next leader(s). It is best to take emotion out of it and think objectively as to who or whom of your children has the desire and skill set (or can develop the skill set) to lead the business. If you believe more than one child should take over the business, you also need to consider how those siblings interact with each other. As discussed below, it may not be necessary for all of your children to be involved, and for the sake of survival and future growth of the business, it may not be advisable.

Once you have determined who you think should take over the business, you should work with that child to develop leadership skills and understanding of the business. Further, it is important that you start to delegate responsibility and authority to the child, so that they can earn the respect of your employees. Respect of employees is even more important than normal in the case of a family transition. You worked hard to earn the respect of your employees through your actions in the day-to-day operations, and your child must be allowed to do this as well.

Another important reason to start this process early, is to keep the child engaged in the business. If the goal is to keep the business in the family, your opportunities to do so are the same as the number of children you have. Therefore, consideration should be given to starting the transition of ownership in small increments over time through bonuses/gifting or, and possibly more importantly, setting forth on paper an agreement which clearly identifies the path by which the child or children will take over full ownership.

As discussed above, objective consideration must be used to determine which child(ren) will take over the business. Once it is determined who will, then another step in setting the business up for success relates to properly setting up your estate plan. While it is possible the complete transition happens while you are alive, you must prepare for the possibility it does not. You need to think about the fair vs. equal distribution of your assets. This includes remembering that as your child develops in the business (allowing you to step back), part of the value of the business may be attributable to their hard work and effort. The best-case scenario is that you have enough other assets to balance out (as you deem fair) the interest in the business going to the child(ren) in the business. If you do not, other options may need to be explored in order to leave the business in a profitable place, whereby your selected child(ren) have the authority to run the business without being impeded by the child(ren) outside of the business. This could include creating buy-sell agreements with life insurance to fund the payout. The selected child(ren) could use the life insurance proceeds to buy out the other siblings. If life insurance is not available or adequate, another option may be to structure an option for the purchase of shares on terms and conditions that would allow the child(ren) involved with the business to facilitate the buyout over the course of time.

If your goal is to transition the business to the next generation, it is important to start thinking and acting early. The items set forth above are only some of the considerations that should be reviewed as a part of the process. The sooner you start having conversations with your family and your team of advisors (lawyers, accountants, etc.), the better chance your family business has to increase the statistic above.

For more information, please contact Mike Demerath at 920-430-1900 .

It Is a Family Owned Business

Supreme Court Decision Opens the Virtual Door for States to Collect Sales Tax for Online Purchases

Mon, 06 Aug 2018 21:07:40 GMT

Online Retailers Must Collect Sales Tax

In a recent landmark decision, the U.S. Supreme Court granted individual states the authority to require that online retailers collect and remit sales tax even if they do not have a physical presence in the state. The Supreme Court made the decision after South Dakota filed a lawsuit against major online retailers Wayfair, Overstock.com and Newegg regarding the collection of state sales tax with respect to purchases made by its residents.

South Dakota v. Wayfair et. al.overturned a decades-long Supreme Court decision which required companies to have a physical presence in a state before that state could require the company to collect and remit sales tax on the goods or services the company shipped to that state’s residents. This rule came to be known as the “physical presence rule”.

In Wayfair, the Court stated that each year the physical presence rule becomes further removed from today’s economic reality as online retailers are now shipping their products across the United States to numerous locations while maintaining a physical presence in a separate state. This has resulted in significant revenue losses to the states. The Court noted that the physical presence rule has caused states to lose annual tax revenues of up to $33 billion. In effect, the physical presence rule had come to serve as a judicially created benefit for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers – something that has become easier and more prevalent as technology has advanced.

Given the Court’s ruling, many states are likely to implement new laws or adjust their existing laws in order to take advantage of the decision. However, these laws could face their own legal challenges. The South Dakota statute covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services into the state or engage in two hundred or more separate transactions for the delivery of goods or services into the state. The Court reiterated the longstanding principle that states cannot impose excessive compliance burdens on out-of-state sellers and left open the possibility that some transactions were so small and scattered that no taxes should be collected. Furthermore, the Court did not decide whether states may seek sales taxes retroactively, which South Dakota’s law did not.

Although the increased tax revenue will be a benefit to the states, it may have an adverse effect on smaller-scale online retailers. The dissenting judges noted that there are over 10,000 jurisdictions that levy sales taxes. The dissent was not only referencing the different state regulations, but also the county and municipal regulations that will need to be navigated and understood by online retailers. Each of these jurisdictions will presumably impose different tax rates, different rules governing tax-exempt goods and services and different standards for determining whether an out-of-state seller must collect and remit a sales tax.

Many large online retailers are now requesting legislative action from Congress to implement clear and fair rules for tax collection from out-of-state sellers, which will presumably reduce the compliance burden as well as the number of issues that need to be litigated in the courts. For example, the online retailers are asking that Congress ban states from attempting to collect back taxes on past sales. However, it is yet to be determined when or if Congress will respond to the Wayfair decision.

Individual states could also assist in simplifying and clarifying when online retailers must remit a state sales tax. More than twenty states (including Wisconsin and many states in the Midwest including Michigan, Minnesota, Iowa and Indiana) participate in the Streamlined Sales and Use Tax Agreement, which simplifies sales tax systems and helps sellers comply by establishing a centralized computer system for registering and remitting payments. Under the Agreement, out-of-state sellers can use tax administration software and are not liable for any mistakes made by the software.

Smaller-scale online retailers should be more cognizant of state tax laws in light of the Wayfairdecision. Online retailers should keep apprised of changes in states’ tax laws in an effort to determine if sales in a given state will be subject to sales tax. In addition, such retailers may wish to implement a tracking system in their ordering process to determine how many customers they have in a given state and the total amount of sales they transact in the given state. This information may be critical, as many states changing their sales tax laws will likely model their statute on the South Dakota Statutes. Finally, online retailers should determine which states participate in the Streamlined Sales and Use Tax Agreement and register with the Streamlined Sales Tax Registration System to assist in complying with the enrolled states’ tax laws.

Planning Ahead with A Special Needs Trust

Tue, 17 Jul 2018 21:04:16 GMT

Few would argue with the notion that estate planning always requires careful consideration and planning, but when an estate plan includes a disabled beneficiary, even more care is needed with a special needs trust .

Many government benefit programs, including Medicaid and SSI, are asset tested, meaning that beneficiaries of those programs cannot have countable assets in excess of a certain amount in order to gain and/or maintain eligibility for these programs. Due to this, family members often believe that the disabled individual in question cannot be provided for through an estate plan. Fortunately, estate planning has evolved, and through the use of special needs trusts, disabled beneficiaries can be provided for and still maintain eligibility for asset tested government benefit programs. Specifically, if an individual is disabled within the meaning of Social Security laws and is the beneficiary of a properly drafted special needs trust, the assets of that trust will not be counted as an available asset for purposes of determining government benefits eligibility. The assets of a special needs trust can be used to provide the beneficiary with more financial freedom and can be used for a broad range of goods and services. Examples of special needs trust expenditures include furniture, appliances, cable and internet, computers, vehicles, travel and home improvements for the disabled individual.

There are two main categories of special needs trusts: those created with the beneficiary’s own assets (known as self-settled or first-party trusts) and those created with someone else’s money (known as third-party trusts).

A self-settled special needs trust is funded with the assets already owned by the individual or assets that the individual would otherwise receive directly, such as from an inheritance, Social Security backpay award, or a personal injury settlement. In exchange for the assets of a self-settled special needs trust not being included in the disabled individual’s countable assets, the self-settled trust must include a provision requiring that the state agency paying out benefits be paid back upon the beneficiary’s death for the services provided to the beneficiary during his or her lifetime, to the extent that funds remain in the trust.

Special needs trusts may also be established for the benefit of disabled individuals and funded with the assets of third parties (i.e., a donor creates and funds this trust with the donor’s assets). These third-party trusts are typically established as part of the donor’s estate plan to hold and manage an inheritance for a disabled individual. A third-party special needs trust can be the beneficiary of life insurance policies and can own real estate and investments, among other assets. Third-party trusts provide wonderful opportunities in planning for a special needs family member, whether the individual is a child or an adult. Upon the death of the beneficiary of a third-party special needs trust, the remaining assets in the trust can pass to the donor’s other relatives or beneficiaries. Unlike first-party special needs trusts, there is no payback requirement. This factor is one of the key advantages of planning ahead with a third-party special needs trust.

Both self-settled and third-party special needs trusts can be established as private trusts or as part of a pooled trust. In the context of a private special needs trust, a family member or other individual routinely serves as trustee to oversee the administration and distribution of trust assets during the beneficiary’s lifetime. A pooled trust, on the other hand, holds the resources of many disabled beneficiaries in individual sub-accounts for each beneficiary. The sub-accounts in a pooled trust are established under one master trust, and there is one trustee appointed to administer that master trust, and in turn, all sub-accounts established under it.

Pooled special needs trusts offer a number of advantages including low funding requirements and administrative fees, and greater investment opportunities. Commonly, the assets in a pooled special needs trust are managed, administered and distributed by a non-profit association that works in conjunction with the trustee. In Wisconsin, the primary pooled special needs trust administrator is WisPACT (Wisconsin Pooled and Community Trust).

The determination as to whether a pooled trust or private trust is more beneficial is made on a case-by-case basis, as no two beneficiaries or cases are the same. A pooled special needs trust is often the best choice if a disabled individual does not have any family or friends able or willing to serve as trustee. A private trust, on the other hand, may be more beneficial in instances where a disabled individual has a family member or friend who is well-versed in government benefit programs and willing to serve for little or no compensation. Either way, planning ahead with a special needs trust is important to maximize the options available and to ensure each case is given the careful consideration it deserves.

TAX CUTS AND JOBS ACT OF 2017 CREATES ESTATE PLANNING OPPORTUNITIES

Tue, 24 Apr 2018 21:03:04 GMT

Tax Cuts and Jobs Act of 2017

Late last year, Congress passed and the President signed new tax legislation known as the Tax Cuts and Jobs Act of 2017 (TCJA), that was generally effective January 1, 2018. While the legislation was not the tax simplification or tax reform that many would have liked, it is hopefully a move in the right direction. Given its passage late in the year, it has wreaked havoc for tax practitioners trying to determine the effect moving from 2017 to 2018. Individual and corporate income tax rates have been reduced, several business deductions and credits have been eliminated or reduced and other tax breaks have been enhanced. It is primarily an income tax act and it did not repeal the Federal estate and gift tax, which had originally been discussed.

Estate and Gift Taxes. From an estate and gift tax planning standpoint, the Tax Cuts and Jobs Act of 2017 doubled the combined estate and gift tax exemption amounts and the generation-skipping transfer tax (“GST”) exemption amount, thus having an impact on the high net worth estates. Theoretically, the actual increases of the exemption amounts are only temporary inasmuch as, if Congress does not act again by 2026, the exemption amounts will revert to the 2017 levels, which were approximately $5,500,000 for single taxpayers and approximately $11,000,000 for married couples with proper estate tax planning. In the history of the estate and gift tax legislation, the exemption amounts have never decreased; however, the possibility exists that reductions may occur in 2026.

From an estate and gift tax standpoint, with respect to people dying or gifts made after 2017, but before 2026, the estate and gift tax and GST tax exemption amounts will increase to approximately $11,200,000 and $22,400,000 (for married couples). Such amounts will be adjusted for inflation in future years. The marginal estate, gift and GST tax rates will remain at 40%.

To put this in perspective, approximately 0.4% of taxpayers were subject to the old $5,500,000 estate tax exemption equivalent amount. In other words, only four out of every 1,000 people were subject to it. Now, that number has been reduced further. At first glance, the thought might be that there is no longer a need for tax motivated estate planning because of the increased estate exemption equivalent amounts and the fact that the estate tax will apply to a very limited number of people.

Lifetime Gifts. Given the very high exemption amounts applying for estate, gift and GST tax purposes and further given the possibility that these amounts could be reduced later, there are currently tremendous opportunities available to make very significant lifetime gifts, which gifts, and the future appreciation thereof, would permanently avoid transfer taxes in the future, even if smaller exemption amounts are reinstated at some point in the future. The disadvantage of lifetime gifts has always been the lack of a step up in income tax basis, that otherwise applies if an asset is owned at the time of a person’s death. The step up in basis serves to reduce the capital gains tax on any appreciation in that asset prior to the person’s death. Accordingly, income and capital gains taxes could be increased as a result of any gain ultimately realized by the recipients of those gifted assets. The transfer tax savings must be weighed against any additional income and capital gains taxes.

Section 529 Plans. The benefits of the Section 529 College Savings Plans have also been permanently expanded. Such plans permit tax free withdrawals for qualified educational expenses, now including elementary and secondary school expenses, and contributions to such accounts can be removed from a person’s estate, even if that person retains the ability to change beneficiaries or get their money back. A primary benefit of Section 529 Plans isthat five years’ worth of gift tax annual exclusions can be bunched into a single year without triggering any gift taxes or GST taxes or using any amount of exemption amounts. For example, given the current annual exclusion of $15,000, a person could contribute $75,000 (or $150,000 for married couples) without having any transfer tax effect.

Dynasty Trusts. Given the substantial amounts that can be transferred now, now may be an appropriate time to establish a Dynasty Trust that allows substantial amounts of wealth to grow and compound free of any transfer taxes for your grandchildren and any future generations. The GST tax, which is also calculated at the 40% rate, was originally designed to tax transfers to grandchildren and others that skip a generation. By leveraging the now greatly increased GST tax exemption amount, even greater amounts can be transferred to your grandchildren and future generations. A transfer of $11,200,000 to a properly structured Dynasty Trust will not be subject to gift tax because it is within the available gift tax exemption amount and such assets, together with all future appreciation, will be removed from your taxable estate. Further, by allocating the GST tax exemption to the contribution to the Dynasty Trust, any future distributions or other transfers will avoid GST taxes, regardless of the value of the assets and the exemption amounts in the future.

So, in the final analysis, while the Tax Cuts and Jobs Act of 2017 was primarily an income tax act, it does have an impact on your estate planning and is all the more reason for you to take advantage of the opportunities that are presented by speaking with your legal, accounting and financial advisors.

The HDZ Way

Tue, 24 Apr 2018 21:01:20 GMT

Relationships Matter - The HDZ Way

As a law firm, we have worked hard to distinguish what we do, but, more importantly, how we do it, as compared to other law firms in the area, this is The HDZ Way. This remains our goal as we have grown from three attorneys to seven attorneys and have seen our support staff increase from three to eleven. Anyone who has experienced significant growth in his or her business will admit that maintaining the culture that “brought you to the dance” whenmore and more people are running around the office is always a significant challenge. Given our business model, we have had this discussion with many of our business clients. The fact that we live the same issues our clients do enhances our ability to assist them.

A client seeking business and estate planning legal services in Northeastern Wisconsin is fortunate to have several very qualified business and estate planning law firms, and even a few solo practitioners, to choose from. It has always been our goal to lead that group with the seven attorneys at our law firm, who focus solely on business and estate planning issues and the myriad of legal areas that entails. While a prospective client looking for legal services might talk to attorneys who each know the law, the critical issue becomes the ability to listen to the client to determine exactly what that client’s legal needs are and, more importantly, what that client wants to accomplish. Only by understanding the client and his or her objectives can we increase the client’s understanding, as well. It is through this exchange that we begin what we hope is a long-term and mutually satisfying relationship that addresses our clients’ legal issues as they arise.

The generation that preceded ours seemingly felt that attorneys had a certain mystique which implied that the attorney, in his or her infinite wisdom, would recommend a course of action for the client to follow and that was that. Perhaps attorneys were not to be questioned and perhaps further there was a perception of a certain “stuffed-shirtedness”when dealing with attorneys. The idea of actually enjoying one’s trips into and through the legal process was almost unheard of. Well, our approach allows for some enjoyment.

Almost twelve years ago (after the three original partners had been together for several years), we formed our law firm under a simple guiding principle that governs virtually every aspect of what we do. That is – “Relationships Matter”. Ours is not a practicepredicated on a single engagement or a single project, but on the development of relationships with our clients that will stand the test of time and that will result in additional engagements and projects in the future, referrals of friends and other family members and even having a little bit of fun at those times when having a little bit of fun is possible.

“Relationships Matter” is what brings us into the office each morning and what dictates how we interact with our clients and how we advance our clients’ goals and objectives. When asked what “Relationships Matter” means, we smile and suggest that we care not only about the legal issues and the legal results, but the impact on the client and his or her family. We “give a darn” about those people who think enough of us to make us their attorneys.

We carry the “Relationships Matter” mantra forward every day by personally assuring each and every one of our clients that we will do the very best we can do to advance their interests. In order to do so, we are committed to client communications that are second to none. We will return phone calls promptly. We will keep our clients advised, often at least on a weekly basis, as to the status of that client’s particular affairs. We will under promise and over deliver. To borrow the tagline of a longtime (and very successful) business client – we will do what we say we will do.

As to how we will over serve our clients, it starts with exceptional client communication, of course, but our commitment to communication does not stop there. In order to bring the talents of our entire firm to the forefront to serve our clients’ needs and desires, we must have internal communications that are also second to none. As a group of attorneys, we review the list of every new client and every new project for existing clients for which we are retained. Each attorney has the opportunity to weigh in as to a particular client or a particular project. Through this approach, we are able to bring our collective experiences to serve all our clients. Internally, when multiple attorneys are involved in a particular situation, the primary attorney is responsible for providing timely updates to the other attorneys who are involved.

The HDZ approach to the practice of law is to bring our collective experiences togetherand to have each client’s situation handled by the attorney best able and best qualified to doso, regardless of who initiated the client relationship or who is the primary contact. In prior lives, we all were involved in firms where certain attorneys adhered to the “siloapproach,” which meant that an attorney attempted, often with very limited success, to do every single thing and address every single issue for the clients that he or she was the primary contact for. By breaking down the silos and using a more horizontal approach, we assure our clients that they are having the benefit of the best attorneys for the job.

We receive calls every day from new clients or existing clients who need additional work done. Clearly, the primary source of new clients is satisfied existing clients. Local accountants, bankers, financial advisors and insurance agents also make important and very much appreciated referrals to us. Our commitment to our clients and our commitment to those who make referrals to us is that we will always work as a team with the clients and their other advisors to advance each client’s goals and objectives. To anyone who has referred a client to HDZ, we thank you. Your having done so is the highest form of compliment we can receive and we will never lose sight of that.

A prominent local health care provider with whom I have been involved for almost 30 years relies on the qualities of care, respect, joy and competence to set the standard for its business operations and advancement of its mission. We make that same commitment to our clients every single day, although we hope to emphasize the joy, for we must insist that we have fun whenever the opportunity presents itself. This is the HDZ Way.

Selling Products Online May Subject Wisconsin Companies to Litigation in Other States

Wed, 04 Apr 2018 21:00:35 GMT

In today’s economy, many companies conduct a substantial amount of sales over the Internet. However, it may surprise business owners that online sales can subject them to litigation in states in which they have never been physically present. The question of whether a company operating solely in one state can be sued in another state depends on whether a court can establish jurisdiction over that company.

If jurisdiction can be established in the second state, then a court in the second state has legal authority to make a decision upon your company in a dispute. These jurisdictional issues can be complex if the case involves a transaction made over the Internet. The question each state faces is whether a sufficient relationship exists between the company and the state for the second state to have jurisdiction. Each state can vary in which standard they use to determine whether substantial contacts exist between a company and the state in question.

There are basically three different standards which a state may apply when determining jurisdiction. While these standards do not provide bright line rules, they may provide some guidance which could be helpful for setting up your company’s online presence. The first two standards, a “loose purposeful availment” or a “strict purposeful availment” standard, analyze whether a company conducted an intentional act into or towards the state to take advantage of the benefits and privileges of the laws of that state. The third standard analyzes a company’s activities over the Internet and uses a sliding scale test of contacts with the state to determine jurisdiction.

Purposeful Availment. Under a “loose purposeful availment” standard, courts of these states may find jurisdiction exists if the company merely maintains a website. The courts in these state reason that, by maintaining a website, the company has availed itself of the privilege of doing business in that state. Fortunately, very few states apply this low standard to establish jurisdiction.

Under a “strict purposeful availment” standard, courts of these states generally exercise jurisdiction only where companies engage in activity specifically targeted at its state. In these cases, a court will look at the company’s subjective intent and try to determine whether the company specifically targeted customers in its state. This is the standard most courts in the Midwest apply, including those in Wisconsin, Illinois, Michigan, Minnesota, Indiana and Iowa.

Sliding Scale Test. A majority of states outside of the Midwest use a “sliding scale test” to determine whether a company’s website provides the minimum contacts required for jurisdiction. Unlike the strict purposeful availment standard, courts using a sliding scale test focus more on a company’s objective actions. As the sliding scale test is applied by a majority of states outside the Midwest, it is important to understand this scale.

If your company’s website is one that just makes information available, it would be low on the scale and jurisdiction may not be established. Conversely, if your website clearly conducts business with residents in the state, jurisdiction will likely be established. Unfortunately, most companies’ websites fall somewhere on the scale between an informational website and a website seeking to conduct business with residents of another state, as they are interactive and allow users in another state to exchange information with the company. This creates a gray area, and therefore courts have to examine and judge the level of interactivity and commercial nature of the exchange of information that occurs on the website in order to determine jurisdiction. Some factors courts consider in the sliding scale test include: website hits from state residents, email participants from the state and acceptance or processing of payments from residents of the state. If the factors the court examines have sufficiently high numbers, jurisdiction may likely be established.

While the allure of online sales in the Amazon age is appealing to many small businesses, business owners must be cognizant of opening themselves up to defending lawsuits in far way states as a result of online sales. If your company is transacting a significant amount of business with residents from an outside state, it should signal to you that your company may be subjected to lawsuits in that state.

One way a company may protect itself from being sued in another state is by establishing a website that only posts information about the company, without making active sales to potential customers. Alternatively, if online ordering is essential to the company’s profits, the company could take steps to attempt to limit jurisdiction through mandatory forum selection provisions. Mandatory forum selection provisions require a party to bring potential lawsuits in a designated state. These provisions may be easily incorporated into the terms and conditions of sale a consumer accepts in placing their order. In addition, a business owner may wish to consider limiting the states to which their products are shipped, to prevent foreign states from establishing jurisdiction.

Ultimately, business owners will need to carefully weigh the potential costs and benefits of online advertising and e-commerce. The jurisdiction issues and concerns discussed above are essential factors which a company must take into consideration when conducting online transactions.

Are you missing a GRAT opportunity?

Mon, 30 Oct 2017 20:58:56 GMT

With the reinstatement of the estate tax in 2011, many individuals will want to revisit their estate plans—and soon. Gifting through a Grantor Retained Annuity Trust (“GRAT”) is one way parents can transfer significant assets to children with little or no gift tax consequences.

The current historically low interest rate of 1.8 percent makes GRATs an ideal vehicle to transfer wealth. However, in order to take advantage of this interest rate, the GRAT must be established and funded prior to January 1, 2011.

A GRAT is a trust created by a grantor, who retains the right to receive fixed payments from the trust for a specified term of years. At the conclusion of the term, any assets left in the trust pass gift tax-free to the remainder beneficiaries.

At the time the GRAT is created, the tax consequences are determined based on the amount of assets contributed to the GRAT, the term of the GRAT, an assumed interest rate and the value of the retained payment to be made to the grantor.

For example, assume that Alex transfers $1,000,000 to a GRAT for a term of three years—at a time when the IRS assumed rate of return is 1.8 percent—and retains the right to receive $345,405 each year. In this case, he will have made no taxable gift because the value of his retained payment is equal to the amount gifted plus the assumed rate of return.

If, over the course of the three year GRAT term, the assets held by the GRAT grow at 10 percent per year, the GRAT will have effectively transferred $187,710 to Alex’s children on a gift tax free basis. In this case, Alex will have received $1,036,214 back from the GRAT.

The benefit of the GRAT technique is largely dependent upon the rate of return of the assets contributed. If the assets contributed fail to produce a rate of return in excess of the assumed rate of return, the GRAT will have failed to produce any benefit. If however, the assets produce a return far in excess of the assumed rate of return, the GRAT can successfully remove significant amounts of assets from the Grantor’s estate free of any gift taxes.

In selecting assets to contribute to a GRAT, obviously those assets that have the greatest likelihood of substantial appreciation should be considered. This may include stock in a closely held business, S-Corporation stock or publicly traded securities.

Now may be an opportune time to contribute such assets as current economic conditions may allow for the value of closely held interests to be significantly lower than will be the case once the economy returns. This would further the likelihood of the GRAT being successful.

In this historically low interest rate environment, the use of a GRAT can provide significant opportunities to transfer wealth to the next generation on a gift tax free basis.

Recent Appellate Decision Cause to Review Your Non-Solicitation Agreements

Mon, 23 Oct 2017 20:57:29 GMT

Through their written decisions, the Courts continually interpret and refine the laws of this State. This is especially true in the context of employment law, particularly those laws which relate to restrictive covenants. As the name suggests, restrictive covenants operate to restrain an employee’s actions both during and after employment. They are commonly known as non-compete, non-solicitation, or confidentiality agreements. The enforceability of these types of restrictive covenants is controlled by Wis. Stat. § 103.465, which states that any agreement between an employer and employee which imposes “an unreasonable restraint on trade is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.”

Exactly what does and does not constitute an “unreasonable restraint” within the meaning of the Statute is the subject of considerable debate. Periodically, the Courts will decide a case which puts an end to the debate as to a certain issue and clarifies how the law will be applied going forward. Last year, Runzheimer International v. Friedlen, et al., determined that continued at-will employment will be considered sufficient consideration to support a restrictive covenant agreement.

A recent Appellate decision, Manitowoc Company, Inc. v. Lanning, may have a similar wide-reaching effect upon the enforceability of restrictive covenants. Mr. John Lanning was formerly employed by the Manitowoc Company, Inc (“Manitowoc”). During his employment, Mr. Lanning executed a restrictive covenant agreement containing a non-solicitation clause which prohibited Mr. Lanning from “solicit[ing], induc[ing] or encourage[ing] any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.” The language contained in this clause is similar to that seen in many other non-solicitation agreements.

Mr. Lanning voluntarily terminated his employment with Manitowoc and went to work for a direct competitor of Manitowoc. Shortly thereafter, he engaged in an effort, on behalf of his new employer, to solicit Manitowoc employees. Both parties agree, more or less, that Mr. Lanning’s actions violated the non-solicitation clause contained in his agreement. Mr. Lanning, however, asserts that the clause is unenforceable.

Manitowoc filed suit against Mr. Lanning in the Circuit Court for Manitowoc County. The Circuit Court granted summary judgment in favor of Manitowoc and awarded it damages which included over $1,000,000 in attorney fees. Mr. Lanning filed an appeal and the Appellate Court reversed the Circuit Court’s decision on the grounds that the non-solicitation clause, as drafted, was overbroad and unenforceable.

Manitowoc argued that Wis. Stat. § 103.465 does not apply, but even if it did, the non-solicitation clause is enforceable as it is necessary to protect a legitimate business interest in preventing former employees, such as Mr. Lanning, from using the relationships and specialized knowledge gained while working for Manitowoc to “systematically poach” its employees for the benefit of a competitor – which is exactly what Mr. Lanning did.

The Appellate Court’s decision is based upon the belief that Manitowoc’s non-solicitation clause reaches beyond the scope of the company’s protectable interest. It reasoned that the non-solicitation clause, as drafted, could operate to prevent Mr. Lanning from serving as a reference to a Manitowoc employee who applies for a new job, or “encouraging a former colleague and friend to retire to spend more time with his family”. Clearly, the driving force behind the non-solicitation clause was not to prevent these types of likely harmless scenarios.

Notwithstanding Manitowoc’s intent, the Appellate Court found the clause to be overbroad. “In short, Manitowoc has drafted a provision that requires it to prove that it has a protectable interest in preventing Lanning form encouraging anyemployee to leave Manitowoc for any reason, or to take any job with any competitor, supplier, or customer. […] Although Manitowoc articulates legitimate, even protectable, concerns, the provision it drafted is far too sweeping to withstand the close scrutiny we give such restrictive covenants.” Wisconsin law does not grant the courts the power to revise or alter an overbroad provision to make it enforceable. If one part is unenforceable, the entire clause, and any other clause which it affects, is deemed unenforceable.

It is important to note that the decision of the Appellate Court has not yet been published in the official reports, although publication is recommended by the Court, and that the decision is subject to appeal and potential reversal by the Supreme Court for the State of Wisconsin. Nonetheless, employers would be wise to re-examine the language of their non-solicitation agreements and seek the advice of an attorney regarding whether the agreement should be revised in light of this recent decision.

Succession Planning For Family Owned Businesses – Are Valuation Discounts Doomed?

Mon, 16 Oct 2017 20:55:33 GMT

Overview

Family owned businesses, including farms and real estate entities, are often structured, in part, so that ownership can be transferred from generation to generation in the most tax efficient way possible. Use of an entity (such as a Family Limited Partnership (FLP) or Limited Liability Company (LLC)) has been attractive, in part, because of the ability to make gifts, bequests or transfers of interests in the entity at a reduced transfer tax cost, due to valuation discounts. Historically, the value of an interest in an entity is based on what a hypothetical willing buyer would pay a hypothetical willing seller for such interest. As part of this equation, the value of a minority interest in an entity was discounted by the hypothetical buyer to reflect the buyer’s inability to readily resell the interest (lack of marketability discount), as well as the buyer’s inability to participate in the management and control of the entity (lack of control discount). The recently released proposed regulations, if finalized, seek to significantly alter the valuation equation by eliminating valuation discounts for intra-family transfers of interests in such entities for gift and estate tax purposes.

Background

Congress previously enacted legislation in 1990 in an effort to minimize the use of valuation discounts for intra-family transfers of entities. However, as is the case with many tax laws, the closing of one door opened another. States changed their laws, additional interpretative guidance was issued and tax court cases provided a road map to allow planners to navigate the evolving tax laws to still achieve valuation discounts.

Following is an example illustrating the power of valuation discounts under the existing law: Mom and Dad create an FLP and contribute $8,000,000 of real estate to the FLP. Mom and Dad gift 45% of the FLP to their child and have a valuation prepared to determine the value of the gift. Since the valuation expert is valuing the interest in the FLP that was gifted, the valuation expert needs to take into consideration lack of control and lack of marketability. If a 33% discount is appropriate, Mom and Dad are able to remove $3,600,000 of underlying value at a transfer valuation of $2,400,000 ($4,000,000 – ($4,000,000 x .33)). This results in an estate and gift tax savings of $480,000 ($1,200,000 x .40) at current rates.

The IRS has fought and continues to fight the valuation battle. Up to the issuance of the final regulations, this battle will generally be defined in terms of how much of a discount is appropriate under the circumstances.

Major Provisions

On August 2, 2016, the U.S. Department of Treasury issued proposed regulations that are designed to specifically eliminate valuation discounts for transfer tax purposes in the context of family owned entities.

Prior planning typically included restrictions on voting and liquidation rights that were placed on the interests being transferred to family members. In addition, state law default restrictions (e.g., Wisconsin does not allow a limited partner to unilaterally withdraw from an FLP) were taken into account for purposes of valuation. For example, the recipient of a limited partner interest has no vote, cannot direct when distributions are to take place and cannot force the FLP to liquidate and distribute assets to the partners. The proposed regulations require that many of these restrictions are ignored for valuation purposes.

Significantly, the proposed regulations:

Treat each owner of an interest in a family controlled entity as having a mandatory “put” right to obtain a proportional share of the entity’s net asset value. For example, a 20% ownership interest in an entity worth $10,000,000 would be valued at $2,000,000.

Ignore restrictions (including what state default law provides) on the ability of the owner, including limited partners, to liquidate his or her interest.

Recapture the value of a lapsed liquidation or voting right associated with an interest transferred within three years of the death of the transferor.

Despite these restrictions being real and legally enforceable, they are treated as non-existent for transfer tax valuation purposes, despite these restrictions having importance for non-tax purposes. Interestingly, two similarly situated businesses are treated dramatically differently if one is deemed family owned and the other is not. Valuation discounts for lack of control and marketability are entirely appropriate is both contexts, however, they will not be recognized in the family owned scenario.

Planning Implications

The proposed regulations are not effective until they are issued as final regulations. A public hearing is set for December 1, 2016 and the final regulations may be issued anytime thereafter. Accordingly, a window exists for family owned entities to utilize existing techniques to achieve significant transfer tax savings through properly structured entities and a timely executed plan.

Leadership Green Bay Class of 2017– Libertas Project Ribbon Cutting

Wed, 11 Oct 2017 20:54:12 GMT

Hager, Dewick & Zuengler, S.C. is proud to have supported the work recently completed at Libertas Treatment Center by Team 1 of the Leadership Green Bay Class of 2017. Team 1, with the partnership and generosity of the Fox Cities Landscape Contractors Association, Inc., designed and installed a healing labyrinth and beautiful outdoor space for patients, families, visitors and colleagues of Libertas Treatment Center. On Wednesday, October 4, 2017, the new outdoor space was dedicated to Libertas Treatment Center and the labyrinth blessed by HSHS Pastor Care. Libertas Treatment Center is a drug and alcohol addiction detox facility helping patients of all ages, with a special focus on adolescent treatment.

Congratulations Team 1 Leadership Green Bay Class of 2017!

LEGISLATURE PASSES LANDLORD-FRIENDLY CHANGES TO STATE’S LANDLORD-TENANT LAWS

Mon, 09 Oct 2017 20:52:16 GMT

Governor Walker recently signed a bill into law which amends several existing landlord-tenant statutes. With the passage of 2015 Wisconsin Act 176 (“Act 176”), effective March 2, 2016, landlords are now equipped with a more effective and realistic procedure to address common headaches and remove problem tenants.

While Act 176 revises a number of sections of the State’s landlord-tenant laws, this article will address three changes which may have a significant effect upon local landlords and tenants. One such change aims to protect landlords and other tenants from criminal and drug-related activity. Under the old law, a landlord with knowledge of criminal or drug-related activity taking place within a rental unit was required to serve the tenant with a five-day right to cure notice before being able to start an eviction action. The tenant could avoid eviction by simply stopping the criminal or drug-related activity within the five-day notice period. From a practical perspective, the five-day right to cure notice was an ineffective tool to curb behavior which significantly increases the landlord’s liability exposure and decreases the safety of the landlord and other tenants.

Act 176 allows landlords to terminate a tenancy by serving a non-curable five-day notice upon a tenant who has engaged in or who permits family members, guests, or invitees to engage in certain criminal or drug related activity within the rental unit. The notice must contain the following information: (1) notification that the tenant must vacate the rental unit within five days of service of the notice; (2) a description of the criminal or drug-related activity, including the date which it took place and the identity or a description of the person(s) involved; (3) notification that the tenant may seek assistance from legal counsel, a volunteer legal clinic, or a tenant resource center; and (4) notification that the tenant may contest the allegations before a court commissioner or judge if an eviction action is ultimately filed.

A tenant does not need to be arrested for or convicted of a crime to trigger a landlord’s right to terminate tenancy by sending a non-curable five-day notice. However, not all crimes or drug related activity will trigger such a right and Act 176 does not specifically define which crimes will apply. The criminal activity must threaten the health, safety, and peaceful enjoyment of other tenants, threaten the health or safety of the landlord, or involve the manufacturing or distribution of controlled substances. Possession or use of a controlled substance in or around the rental unit will not trigger this right. Further, the lack of definition as to which criminal activities will apply leaves room for judicial discretion. Finally, a five-day non-curable notice may not be served upon a tenant who is the victim of the criminal activity.

Another change brought about by Act 176 relates to the service of notice terminating the tenancy of a repeat offender. The overall procedure has not changed. A tenant who commits a non-monetary breach of the lease may be served with a five-day right to cure notice. If the tenant breached the lease again within twelve months, the landlord could terminate tenancy by service of a non-curable fourteen day notice.

Under the old law, the fourteen day notice had to be served prior to the tenant’s remedying the breach. Practically speaking, it was difficult for landlords to serve this notice contemporaneously while the tenant is committing certain types of repeated but temporary breaches of the lease such as excessive noise, smoking within the rental unit, or illegal parking. Act 176 allows landlords to serve a fourteen-day non-curable notice terminating tenancy after the repeated breach has occurred. Notwithstanding this change, a landlord who wishes to terminate a tenancy with a fourteen-day notice should promptly serve it upon the tenant, so as to avoid the inference that the landlord has acquiesced to the tenant’s continued tenancy in spite of the breach.

The final change which this article will mention relates to dealing with trespassers. The definition of a trespasser has been redefined to mean anyone who remains on the property after consent is withdrawn from a lawful tenant, or landlord (if there is no lawful tenant). Further, Act 176 requires that law enforcement have a written policy requiring officers with probable cause that a trespass is being committed to remove the trespasser from the property. This change may be useful for tenants who wish to remove a guest, ex-boyfriend, or ex-girlfriend who is not on the lease and who refuses to leave. If a trespasser is removed from the property and leaves personal property behind, the landlord must hold the personal property for a period of at least seven days before disposing of it.

The topics discussed in this article are among those which are most likely to have a significant impact upon local landlords and tenants. However, this article does not address Act 176 in its entirety. Those interested in learning more about the changes brought about by the passage of Act 176, and how said changes may effect leases and/or notices to tenants, should contact an attorney with knowledge of landlord-tenant law.

Green Bay Walk A Mile In Her Shoes®

Fri, 06 Oct 2017 20:49:57 GMT

Hager, Dewick & Zuengler, S.C. is a proud sponsor of the 5 ^th Annual Green Bay Walk a Mile in Her Shoes® event. Walk a Mile in Her Shoes® is the international men's march to stop rape, sexual assault and gender violence. The Green Bay Walk a Mile in Her Shoes event, which is scheduled for Thursday, October 19, 2017 on the City Deck near Hagemeister Park, benefits Golden House and the Sexual Assault Center of Family Services, as they raise awareness of and work to prevent domestic violence and sexual assault in our communities.

Ben’s Wish 2017 Weekend Backpack Dinner Fundraiser and Auction

Tue, 03 Oct 2017 20:49:08 GMT

Hager, Dewick & Zuengler, S.C. is proud to be a Gold Apple sponsor of Ben’s Wish 2017 Weekend Backpack Dinner Fundraiser and Auction. Ben’s Wish was organized to assist our local communities fight food insecurity issues. The annual Weekend Backpack Dinner Fundraiser and Auction raises money to support Ben’s Wish Weekend Backpack Program, which provides nutritional food packs to needy area children during the school year. Knowing that on weekends many children are required to fend for themselves, Ben’s Wish provides these packs so children have food to eat over the weekend and can return to school on Monday ready to learn.

So I’ve Been Appointed Trustee – Now What?

Mon, 02 Oct 2017 20:48:15 GMT

As the population ages and the use of Revocable Trusts becomes more prevalent, many individuals will find themselves (perhaps without knowing beforehand) appointed as a successor Trustee. This will commonly arise when someone creates a Revocable Trust during his or her lifetime, often for probate avoidance. The creator of the Trust (the Grantor) will typically act as the initial Trustee. Following the Grantor’s incapacity or death, the successor Trustee is then called upon to act. While the initial reaction to the appointment as successor Trustee may be that of appreciation and honor, it is important to understand what duties and responsibilities an individual has by accepting this role.

From an administrative standpoint, the Trustee’s general responsibilities include identifying and collecting all assets subject to the Trust, whether currently owned by the Trust or payable to the Trust. The Trustee is also responsible for the payment of debts or obligations owed by the Trust or Grantor, including any taxes that may be owed. The Trustee must administer the Trust according to its terms, including the distribution of Trust assets to beneficiaries as outlined by the Grantor of the Trust. If the Trust provides for ongoing arrangements for a beneficiary (i.e., an ongoing Trust) the Trustee is responsible for understanding these provisions and applying the Trust funds accordingly. This often requires the Trustee to understand the circumstances of the beneficiary prior to making (or not making) distributions.

In carrying out these general responsibilities, the Trustee has specific statutory duties (known as fiduciary duties), including the following:

Duty to provide information to the beneficiaries as to the administration of the Trust, including distributions, expenses, income, gains and losses experienced by the Trust.

Duty of loyalty to the beneficiaries of the Trust, meaning a Trustee’s personal interest cannot conflict with and must be secondary to the beneficiaries’ interests.

Duty to act impartially (i.e., not giving one beneficiary preferential treatment over another beneficiary).

Duty to act prudently both as to the investment of Trust funds, as well as to making discretionary distributions to the beneficiaries of the Trust.

All of these responsibilities and duties require the Trustee to be organized and maintain meticulous records as to what is being done. Keeping good records is important for several reasons. As discussed above, the Trustee has a duty to account to the beneficiaries as to the investments, distributions and decisions made. By maintaining good records, the Trustee is able to communicate to the beneficiaries and provide accurate information and justification for what has transpired.

As one might surmise from these responsibilities and duties, acting as Trustee is not for the faint at heart. The failure to carry out the terms of the Trust or adhere to the duties as Trustee can open up the possibility for the Trustee to be sued. Accordingly, accepting the role as Trustee should not be undertaken lightly.

A Trustee may always seek out assistance at the expense of the Trust and, in many cases, should. When a Trustee is sued, it is often due to decisions made as to whether to make a distribution or, more often, due to poor investment returns of the Trust (e.g., a beneficiary alleges the Trustee imprudently invested or failed to diversify the Trust funds). While generally the expense of defending a lawsuit is borne out of Trust assets, litigation can be agonizing, time consuming and frustrating for a Trustee. In this regard, an experienced Attorney, CPA and Financial Planner can provide the Trustee with guidance and advice to avoid many of these pitfalls and minimize the threat of the Trustee opening himself or herself up to liability.

Department of Labor Proposes Changes to Overtime Exemptions

Mon, 25 Sep 2017 20:47:13 GMT

On July 6, 2015, The United States Department of Labor (“DOL”) published proposed changes to the Fair Labor Standards Act (“FLSA”) which affect overtime pay protections. The DOL last updated these regulations in 2004. The goal of the proposed changes is to increase the number of employees who benefit from FLSA overtime regulations by updating the salary level required to qualify for what is generally referred to as the “white collar” exemption. The DOL estimates that the proposed changes will affect approximately 4.6 million workers. These workers will no longer qualify for the exemption and will become entitled to overtime pay.

Currently, the FLSA requires that all non-exempt employees receive overtime pay for all hours worked in excess of forty (40) hours per week. The proposed changes stated within the DOL’s Notice of Proposed Rulemaking focus the “white collar” exemption, which excludes certain executive, administrative, and professional employees from federal minimum wage and overtime protections. Currently, to qualify for the “white collar” exemption, employees must: (1) be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) earn at least $455 per week or $23,660 annually; and (3) primarily perform executive, administrative, or professional duties, as further defined by the DOL.

In addition, under the current regulations, certain highly compensated employees are exempt from the FLSA’s overtime pay requirements if they are paid total annual compensation of at least $100,000 and perform office or non-manual work, and customarily perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.

The DOL’s three key proposed changes to the current FLSA regulations are as follows:

A new minimum salary level to qualify for the exemption. The new salary would be set at the 40th percentile of national weekly earning for full-time salaried workers. In 2013, this amount was $921 per week or $47,892 annually. The DOL projects that in 2016, when the rule will likely take effect, the 40th percentile will be about $970 per week or $50,440 annually.

A new minimum total annual compensation requirement needed to qualify for the highly compensated exemption. The compensation amount would be set at the 90th percentile of weekly earnings for full-time salaried workers. In 2013, this was $122,148 annually.

Establish a mechanism for annually updating the minimum salary and compensation levels for these exemptions going forward.

The DOL’s Notice of Proposed Rulemaking does not propose any changes to the “duties” requirements of the “white collar” exemption, nor has it reached a conclusion as to the mechanism or formula it will use to update minimum salary and compensation levels going forward. Further clarification may also be needed regarding whether non-wage compensation, such as bonuses, will be factored into the employee’s salary for purposes of qualifying for the exemption. The DOL has sought comments and input from interested parties regarding these and other issues. The public can review the entire text of the Notice of Proposed Rulemaking and submit comments online at www.regulations.gov.

The new regulations will not become effective until at least sixty (60) days after they are published. As a result, it is anticipated that the new regulations will not go into effect until sometime in 2016. Employers who have employees that will be affected by the proposed changes are advised to have a plan in place to address the potentially increased labor costs, such as implementing and enforcing policies related to how much overtime employees are required or allowed to work.

The publicity of the proposed changes may lead to an increase in employee inquiries regarding whether they are or will be entitled to overtime pay. State and Federal law requires that all non-exempt employees receive overtime pay. Wage and Hour claims are often the result of the misclassification of a non-exempt employee. Employers should understand that their internal classification of an employee’s position (salaried, hourly or independent contractor) does not necessarily determine whether the exemption applies. The position must qualify for the exemption based upon the DOL’s standards. To avoid State or Federal wage and hour claims, Employers would be wise to familiarize themselves with the exemption requirements and ensure that all exempt and non-exempt employees are properly compensated and classified

Wisconsin’s New Digital Property Act

Mon, 18 Sep 2017 20:46:27 GMT

In the July 13, 2015 issue of The Business News I wrote about the frustrations which Personal Representatives, agents under a Power of Attorney, guardians and Trustees were facing when trying to access online accounts and records of a deceased person. I also opined that in order to properly deal with these issues, Wisconsin should adopt a version of the Uniform Fiduciary Access to Digital Assets Act, which many other states were enacting. I am happy to say that on March 30, 2016, Wisconsin enacted the Wisconsin New Digital Property Act (the “Act”).

Wisconsin’s legislature used the Uniform Act as a base and modified it to address items and terms specific to Wisconsin’s existing laws. The Act governs disclosure of digital property to Personal Representatives, agents under a Power of Attorney, guardians and Trustees (“fiduciaries”). These people acting in fiduciary capacities can now receive certain information related to digital accounts/property, as directed by the individual, even if the terms of service say something to the contrary. As discussed below, the Act is unique as it takes a tiered priority approach and requires the individual to “opt-in” in order to allow the fiduciary to receive the actual content of the communications or other digital property.

As mentioned in my prior article, some technology companies recognized the growing problem faced by fiduciaries long before the legislatures, and they developed their own options to address digital property issues. Google developed the “Inactive Account Manager” which notifies a previously designated contact of your inactivity for a pre-selected length of time and gives that contact access to download any data you previously approved (i.e. email, Picasa, Web Albums, YouTube videos, Google docs). Facebook developed “Legacy Contacts” which allows you to designate who will control your memorialized account, write posts, handle friend requests, update photos and download items.

Wisconsin lawmakers recognized these actions previously taken by certain technology companies, and that these “online tools” could conflict with the language or appointments in a Last Will and Testament, Power of Attorney or Trust. Therefore, the Act utilizes a tiered priority approach to clarify which mechanism controls. If a person completes an online tool, such as those mentioned above, and that online tool allows that person to modify or delete a direction at all times, the direction set forth in the online tool will control over any contrary direction in a Last Will and Testament, POA or Trust. If no online tool is used, then terms related to the allowance or prohibition of disclosure of digital property specifically set forth the Last Will and Testament, POA or Trust will control. Given this priority issue, it is important to discuss with your attorney the pros and cons of the use of these online tools as a part of your overall estate plan.

While the Act does automatically provide the fiduciary some access to digital information simply by being named in the Last Will and Testament, POA or Trust, the information is limited to a “catalogue of electronic communications”. A “catalogue of electronic communications” includes information that identifies each person with whom the individual had communication, the time and date of the communication and the electronic address of the person. As you can tell, while this information will be helpful, it does not provide all the information that a fiduciary would desire to obtain because the actual substance or “content of the electronic communication” is not provided. In order to require a third party, such as Google, Facebook, Hotmail, Yahoo, etc., to provide the actual content of the email, chat or other electronic communication, the Last Will and Testament, POA or Trust must contain the individual’s express consent to such disclosure. Therefore, in order to allow your fiduciary see the whole picture and for him or her to act appropriately, the inclusion of additional “opt-in” language related to content in a Last Will and Testament, POA or Trust should also be discussed with your estate planning attorney.

Wisconsin’s new Digital Property Act is a step in the right direction to allow those that would act as your fiduciaries the true access they need in order to properly, timely and efficiently carry out their duties. Now may be a perfect time to review your current estate planning documents, as updates and revisions may need to be made in order to avail your fiduciaries of the options offered by this new Act. Doing so will help bring your estate plan into the digital age and save headaches for your fiduciaries later.

An Estate Plan is Part of a Good Business Plan

Mon, 11 Sep 2017 20:45:04 GMT

As a business owner, you know that the day-to-day activities and long-term goals of your business need to be constantly attended to in order to allow your business to maintain and grow its value. A few days missed results in emails, orders, emergencies and issues pilling up, unless you have given someone else the authority to handle these matters in your absence. What if you haven’t given someone else this authority? What would happen to your business? Most owners think of this issue when they look to take a family vacation, but an owner should also take steps to deal with this issue in context of an involuntary leave of absence due to illness, incapacity or death. Estate Planning Documents such as Powers of Attorney and Revocable Trusts can help provide business owners peace of mind in knowing that the business, which they have worked so hard to build, can continue to operate and benefit their family, even if the owner is unable to be involved.

A Durable or Financial Power of Attorney allows you to appoint a person to handle your financial affairs while you are alive. The Power of Attorney can be effective immediately or only upon your incapacity, whichever you desire. The powers granted to that person include, among other things, the power to continue or participate in the operation of your business, to consent to the sale of the assets of or interests in the business, to vote your interests in the business, and generally represent you in all business matters. In conjunction with the Power of Attorney, documents and agreements of the business may also need to be reviewed and revised to allow for action by the Power of Attorney. There are certain decisions and documents which only the owner can execute, and some will be time sensitive. If you do not have a Power of Attorney, no one would have authority to act for you, and guardianship court proceedings would need to be commenced to appoint a guardian to act on your behalf. The delays caused by the court proceeding could result in damage to and missed opportunities for your business.

A Revocable Trust is another estate planning tool which can greatly benefit a business owner for a number of reasons. By setting up a Revocable Trust and transferring your ownership interest into it, you still maintain control of the business and, while you are still able to act you, as Trustee, make the decisions. Should you become unable to act, whether due to injury, incompetency or death, a Successor Trustee is immediately able to step into your place and continue to operate the business. This allows for the avoidance of delays related to the appointment a guardian while you are alive or a Personal Representative after your death. If a Revocable Trust is not in place, upon your death the disposition of your assets would be governed by a Last Will and Testament or the laws of the State of Wisconsin in a Probate, and a Personal Representative will need to be appointed to handle the Probate. Depending on who needs to receive notice of the Probate proceeding, the appointment of a Personal Representative could result take weeks or months.

An additional benefit of holding your business interest within a Revocable Trust is the avoidance of the need to publically disclose the value of your business. As a part of a Probate, an Inventory needs to be filed, and it will need to set forth the value of your business. A copy of the Inventory will be available at the Register in Probate’s office for anyone to review, which could seriously hurt attempts to negotiate with multiple parties regarding the sale of the business and the financial benefits your family could receive.

While it may be hard as a business owner to step back and think about who would take over if you were unable to act, having these discussions with your family and advisors and putting the appropriate documents in place is an important step to help protect what you have built. The person or persons you choose to act as your Power of Attorney or Successor Trustee is completely your choice. It may be a spouse that has watched you work day in and day out to build the business, and knows how you think about business decisions. It could be a child that, among other things, is part of the business. You know your business best and the decision is yours, as long as you take action now to put the above described documents, along with other customary estate planning documents, in place to help protect your business and your family.

Don’t Let Your Contracts Become Ticking Time Bombs

Mon, 28 Aug 2017 14:43:20 GMT

All small business owners engage in some form of risk prevention in the operation of their business. They create various forms of legal entities to protect their personal assets from business liabilities. They purchase various forms of property, casualty and liability insurance to protect their business assets in the event of a claim. However, contracts are sometimes an overlooked component to a business’s overall risk management plan. All businesses do, or should, utilize contracts while providing goods or services to its customers.

While contracts can be very complicated and lengthy, simple contractual terms and conditions can be utilized as a risk prevention tool with a business’s purchase orders, proposals, invoices or similar documentation provided to your customer when you sell goods or services. The following are several key components typically included in contractual terms and conditions that, if properly crafted, can supplement your business’s risk management plan:

Warranty. A provision as to the duration and extent of the warranty for the goods and services being provided to the customer is a common contractual term and condition. For example, a service provider may want to provide a limited warranty to its customer for a period of one (1) year to the extent defects arise in the work provided. Similarly, a goods manufacturer may want to disclaim all warranties with regard to merchantability or fitness for a particular purpose which are otherwise implied by the Uniform Commercial Code. Without these warranty disclaimers or language limiting the length of the warranty, your business could be subject to warranty claims for many years.

Indemnification. Ideally, you want to receive indemnification from your customer as to any potential claims that may arise due to their negligence or intentional acts with regard to the performance of the contract. A carefully worded indemnification clause can provide you with that protection. Business owners should be particularly wary when reviewing indemnification clauses provided by customers, suppliers or other subcontractors as most boiler plate indemnification clauses provide for very broad indemnification rights. Many indemnification clauses may obligate your business to wholly indemnify your customer from any claim that arises from your negligence, even if the customer, or other third parties, are also negligent in causing the claim. A careful review of, and potential revisions to, indemnification clauses can be very beneficial in preventing future claims and limiting unknown risks.

Limitation of Liability. A limitation of liability clause in your contractual terms and conditions can be one of the most important risk prevention tools. Typically, a limitation of liability clause will prevent a customer from making claims against your business for certain damages, including, but not limited to, consequential damages, lost profits and incidental damages. For example, your business may be providing services to a manufacturer, and your employee negligently causes an accident on the job causing your customer’s facility to shut down for hours, or even days. A properly worded limitation of liability clause may prevent a customer from making a claim for lost profits or other individual damages due to its operations being shut down. As you can imagine, damages such as lost profits can multiply quickly, making this clause a very important risk prevention tool.

Confidentiality. To the extent your customer, supplier or subcontractor will have access to information you deem confidential, a confidentiality clause can avoid that information becoming public or otherwise available to a competitor, causing harm to your business. Many times, confidential items such as customer lists, production methods, processes, techniques or ingredient lists must be provided to your customers or third parties to facilitate contractual obligations. A properly worded confidentiality clause can ensure that your customer is only utilizing that confidential information for the project or contract they are preforming and the information will not be utilized for other purposes or provided to the public, mainly your competitors. Also, to the extent you provide any intellectual property to your customers, the contractual terms and conditions can ensure that you retain ownership of that intellectual property and that it cannot be utilized by your customer on other projects going forward.

Business owners many times overlook the importance of having even simple terms and conditions with their purchase orders, invoices or proposals to protect themselves from uncertain risk. Reviewing contractual terms and conditions provided by third parties is an important risk prevention tool. By utilizing the concepts above, business owners can easily add value to their risk management plan.

Is Your Independent Contractor Really Your Employee?

Mon, 14 Aug 2017 20:41:45 GMT

Many businesses utilize the services of independent contractors in lieu of standard W-2 employees. Many employers benefit from the use of independent contractors because independent contractors bear their own risk of unemployment and workplace injury. They also bear the responsibility of paying taxes upon their earnings. Therefore, employers who utilize independent contractors avoid liability for Unemployment Insurance taxes, Workers Compensation premiums, State and Federal income and employment tax withholding, and Social Security and Medicare tax withholding.

These benefits may sound appealing and could create the cost-saving competitive advantage you are looking for as an employer. However, before you ask your employees to sign Independent Contractor Agreements, or before you give yourself a pat on the back for having already done so, it is essential to make sure you understand the difference between an employee and an independent contractor in the State of Wisconsin, and properly classify your workforce accordingly. An employer guilty of misclassifying its workforce may be liable for additional tax, interest and penalties from the State of Wisconsin. Further, employers engaged in the construction business may be subject to a stop work order.

The fact that you designate a person as an independent contractor, or that you have a signed Independent Contractor Agreement in place, does not end the discussion. The State has the ultimate say, based upon a list of factors, whether a person is an employee or an independent contractor. Employers bear the responsibility for proper classification, and a signed Independent Contractor Agreement will not prevent you from being liable if your “independent contractor” is determined to be an employee by the State. This article will provide a summary of basic questions you, as an employer, should answer to assist in the proper classification of your workforce. As with anything, there are nuances and specific circumstances which may blur the line between an employee and an independent contractor. In addition, there are separate rules for non-profits, governmental agencies, and those engaged in the trucking or logging industry. An experienced employment law attorney can assist you in resolving any worker classification questions/issues.

Classification of general private-sector workers involves a two-part test. The first part of the test involves the control and direction under which the worker performs his/her duties. If the worker is found to be under the control or direction of the employer, the worker is an employee. Conversely, if the worker performs his/her duties independently, and free from the control or direction of the employer, the worker may qualify as an independent contractor and the employer should move on to the second part of the test. To help answer the first part of the test, the employer should consider the following five factors: (1) is the worker required to comply with instructions concerning how to perform his/her duties; (2) did the worker receive training with respect to the services to be performed for the employer; (3) is the worker required to personally perform his/her duties (as opposed to having the freedom to subcontract for the performance of said duties); (4) are the duties of the worker required to be performed at specific times or in a particular order designated by the employer; and (5) is the worker required to give reports to the employer on a regular basis. The more factors you answer in the affirmative, the more likely the worker is an employee instead of an independent contractor.

If part one of the test does not qualify your worker as an employee, you can move on to part two. Part two involves a nine-part “employment conditions” analysis. A worker must meet six of the following nine conditions to be considered an independent contractor: (1) the worker advertises or otherwise affirmatively holds himself/herself out as being in business for hire (even if that business is self-employment); (2) the worker maintains his/her own office or is free to perform most of his/her duties in a location chosen by the worker and uses his/her own equipment or materials in performing said duties; (3) the work operates, or is free to operate, under multiple contracts with one or more employers at the same time; (4) the worker bears the responsibility for the main expenses related to the services he/she provides under contract; (5) the worker is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work; (6) the services performed by the worker do not directly relate to the employer retaining the services (if the worker is hired to perform duties consistent with the general business of the employer, the worker is likely an employee); (7) the worker may realize a profit or suffer a loss under contracts to perform such services; (8) the worker has recurring business liabilities or obligations (ie. – the worker incurs business costs independent of whether or not the worker does work for the employer, such as office rents, equipment costs, etc.); and (9) the worker has other contracts or business opportunities such that he/she is not economically dependent upon a particular employer with respect to the services being performed.

Employers with independent contracts should be mindful of this two-part test to avoid liability for misclassifying its workforce. Small businesses are particularly prone to misclassification. If you realize you have been misclassifying a worker, or if you have further questions regarding worker classification, seek the counsel of an experienced employment attorney

Employee Retention is "Key" For Employers

Mon, 07 Aug 2017 20:40:44 GMT

Purpose

Administration

Participants

EPU(s)

Forfeiture

Under the Plan, the employer may specify the conditions upon which a participant forfeits rights and benefits related to the EPU(s). A participant will oftentimes forfeit all rights and benefits, whether vested or not, (a) upon the employer’s termination of the participant’s employment for cause, (b) in the event the participant violates the terms of the non-competition provisions set forth in the Plan, or (c) upon voluntary termination of employment by the participant (except, upon retirement on or after a certain age).

Death or Disability

Change in Ownership

Payment of Plan Benefits

Agreement Not to Compete

Conclusion

New Year’s Resolution Ideas for Your Business

Mon, 31 Jul 2017 20:38:37 GMT

At the beginning of each year we all take time to reflect on the year that was and what this year can bring. As a part of this reflection, we often come up with New Year’s Resolutions for ourselves, whether it is to lose weight, spend more time with family or finally take that dream trip. The start of a new year is also the perfect time to put in place a set of resolutions for your business. Below are some ideas which you may want to consider as a part of creating your business New Year’s Resolutions.

Entity Formation

Your business may have started as a hobby and, therefore, you are doing business as a sole proprietor under your own name or a trade name. Hopefully over the past year sales have started to grow, and this hobby is now or will become a significant source of income and possibly your full-time job. 2017 may be the time to transition from a sole proprietorship to a limited liability company (LLC). A LLC can reduce the risk of you being personally liable and losing personal property and funds for liabilities of the business. It will also allow for a clear separation of business income and expenses from your personal income and expenses. This will help you create clear budgeting and income projections.

Succession/Exit Planning

As you spent the holidays with children and grandchildren, spending more time with family may be one of your individual resolutions, and a path to fulfill that resolution may be to begin to transfer or completely exit your business. As the owner of a business, succession or exit planning needs to start months, if not years, in advance. The first step is to get a team of advisors (lawyers, accountants and brokers) in place to help review your contracts and accounting in preparation of a transfer of ownership. Are the contracts with your vendors and customers assignable? Do your financial statements include the appropriate information and the detail the bank of a potential buyer might need? These advisors can also help determine if a sale to a third party makes sense or if there is an employee or child that is suited to take over the business. How do you get that individual committed? Should the transfer occur over the course of years or should the transition happen immediately with the assistance of seller financing?

Expansion

As you look to grow your business, maybe 2017 is the year to purchase an existing business. Purchasing an existing business could immediately expand your geographic reach, increase volume and decrease costs. As with succession planning, it is also important to get your team of advisors in place to guide you through a possible expansion. Do your advisors know of an acquisition target which would enhance or compliment your current business offerings? Is the business in a financial position to make the acquisition without becoming overleveraged?

Non-Compete and Confidentiality Agreements

Is 2017 the year to finally get those Non-Compete and Confidentiality Agreements in place to protect your business? You have worked hard to develop your customer and vendor relationships and the confidential information that makes your business successful. It is important that you look to protect your efforts in the event a key employee would leave your business to go to a competitor or start a competing business. When events like these occur, having Non-Compete and Confidentiality Agreements in place is vital. Many people are under the mistaken perception that such Agreements can only be signed at the beginning of the employment relationship in order to be enforceable. Please note that pursuant to a recent Court decision, continued employment is valid consideration to make a Non-Compete and Confidentiality Agreement enforceable.

Employee Handbooks

Each year your Employee Handbook should be reviewed to make sure it complies with current state and federal laws. An Employee Handbook can set forth basic policies and guidelines as to the expectations you have for your employees, as well as basic information related to benefits the business offers. Do you have cellphone and email use policies? Is it time to add information regarding continuing education tuition reimbursement upon the employee achieving a certain grade or staying with the business for a certain amount of time?

As you are setting individual resolutions for 2017, also take the time to set some for your business. Then when 2017 comes to a close, you can look back and hopefully see that you have accomplished your resolutions and your business is more successful than ever.

A Matter of Trust

Mon, 17 Jul 2017 14:34:23 GMT

The use of trusts is becoming more common for various purposes. Most recently, much has been made of President Trump contributing assets to a “blind” trust, as a means to avoid conflicts of interest with respect to his decisions and orders and the impact that these orders and decisions have on his assets. The following will provide an overview as to what a trust is, what a trust seeks to accomplish and common types of trust arrangements.

What is a Trust?

At the most basic level, a trust is an arrangement that spells out the rules to be followed for assets held for someone’s benefit. While trusts may be designed in any number of ways, there are some key elements present in each trust arrangement.

There are three parties to the arrangement:

The Grantor , who is the person who creates the trust and provides instruction as to how the trust arrangement is to operate.
The Trustee , who is the person who is responsible for managing the trust assets and carrying out the term of the trust.
The Beneficiary or beneficiaries, who are the people who benefit from the trust.

Trusts may be created to be effective during lifetime or at death. A lifetime trust may be irrevocable or revocable by the Grantor. The revocability of the trust will depend on what is sought to be accomplished by the trust.

What does a Trust seek to Accomplish?

The purpose of having a trust is to achieve a specific goal or goals. With the desired objectives identified, the Grantor can structure the language of the trust to address these goals.

Some of the specific goals include the following:

Limit Access to Funds. A trust can limit a beneficiary’s access to funds by providing for distributions at certain ages and/or under specified terms (e.g., distributions may be made for health, education, support or maintenance). This type of trust is commonly structured as a Testamentary Trust and is typically created for a minor or relatively young beneficiary and may be included in someone’s Last Will and Testament or Revocable Trust.

Avoid Probate. A Revocable Trust or Living Trust can be created and funded to manage assets during lifetime and following death. The Grantor retains the right to revoke or modify the trust at any time. Following the Grantor’s death, the trust provides for the disposition of assets based on the instructions outlined by the Grantor. These instructions may include ongoing trusts for beneficiaries, similar to those discussed above. The funded Revocable Trust allows for the transfer of assets to beneficiaries on a private basis, as no inventory or records need to be filed with the Register in Probate.

Address Second Marriage Situations. In situations where an individual has children from a prior marriage or relationship, often an objective is to provide for a surviving spouse, yet ultimately have any remaining assets pass to children. If assets are left outright to the surviving spouse, these may be consumed or redirected to someone other than the Grantor’s children. A marital trust, known as a QTIP Trust, can be used to provide for distributions to the surviving spouse, yet ultimately have the remaining assets pass to children upon the surviving spouse’s death.

Minimize Gift and Estate Taxes. To the extent someone has a sizable estate and is concerned about estate taxes, trusts can be structured to make use of a Grantor’s Federal Estate and Gift Tax Applicable Exclusion Amount (currently $5,490,000 per person). This can take the form of a Credit Shelter or Family Trust created at death or, in some cases, a lifetime irrevocable trust to receive gifts of assets during lifetime.

Provide for Divorce or Asset Protection. Rather than giving assets outright to a beneficiary, if assets are left in trust for the benefit of a beneficiary, a beneficiary does not “own” these assets and, therefore, a divorcing spouse or a creditor of such beneficiary cannot reach the assets held in trust.

While a trust arrangement is relatively straightforward, considerable flexibly exists in structuring the provisions of a trust. When done correctly, trusts can be useful mechanisms to provide for an ongoing legacy to ensure that a Grantor’s objectives are fulfilled.

WHY YOUR LLC NEEDS AN OPERATING AGREEMENT

Wed, 12 Jul 2017 14:29:32 GMT

The most widely used entity to operate a small to medium-sized business is the limited liability company (“LLC”). An Operating Agreement is likely one of the most important documents your business will utilize. Given that each business is unique, a carefully tailored Operating Agreement, as opposed to a pre-printed form or something found on the internet, is preferred and far more beneficial to your LLC. This article will summarize the major reasons why your LLC needs an Operating Agreement.

Restriction on Transfer . One of the most significant benefits of an Operating Agreement is creating a restriction on the transfer of each member’s units. Without a restriction on transfer clause in an Operating Agreement, the members of the LLC can freely transfer their membership units to any third parties and, in practice, obligate you and the other members of the LLC to have new business partners. A restriction on transfer clause can prohibit this action by allowing the LLC, or the other members, to purchase the units that a member is attempting to sell to a third party at a predetermined price. Finally, the Operating Agreement can set forth certain permitted transferees to allow the members of the LLC to freely transfer his or her units to another member, his or her spouse or children, or any other third parties the members agree on.

Triggering Events. Many business owners neglect to think about what will happen if one of the members of the LLC were to die, become disabled, file bankruptcy, retire or voluntarily withdraw from the LLC. All of these triggering events can be detailed in the Operating Agreement so its members understand what will happen if one of these unforeseen events were to take place. In the event of death or disability, the LLC or its members can either be given an option to purchase or be obligated to purchase the deceased or disabled member’s units. If the members of the LLC are also employees, detailed provisions can be included with regard to what occurs if a member is terminated voluntarily, for cause or retires. Finally, the Operating Agreement can provide the LLC with rights to purchase the member’s units if he or she files bankruptcy or voluntarily withdraws from the LLC, sometimes at a discounted purchase price.

Decision Making. Whether an LLC is managed by its members or a manager appointed by the members, the Operating Agreement can detail the scope of decision-making authority. Some LLC’s may choose to give the managing member or manager broad authority to run the day-to-day operations of the LLC, execute contracts, pay vendors, etc. and only require a vote by the remaining members for very important decisions such as obligating the LLC to loans, sale of certain business assets, etc. Alternatively, some LLC’s will want more than one member involved in the day-to-day decision making and can set certain limits as to the authority of the managing member on behalf of the LLC.

Buyout Price. Another advantage of an Operating Agreement is its ability to set forth a mechanism for the valuation of the LLC and establish a buyout price if any triggering events occur. Many times, an LLC and its members choose to set the value of the LLC on an annual basis. Another option is to have a predetermined mechanism for the valuation of the LLC. This value may be based on the book value as established by the LLC’s accountant or by a fair market appraisal by an appraiser familiar with the business. Regardless of the valuation method selected, avoiding further disputes as to how the LLC will be valued and determining the buyout price is another benefit of the Operating Agreement.

Noncompetition, Nonsolicitation, Nondisclosure. An Operating Agreement can also prohibit a member who leaves the LLC from certain acts. First, the Agreement can contain a noncompete clause prohibiting an exiting member from competing with the LLC’s business, subject to detailed restrictions. Second, the Operating Agreement can prohibit an exiting member from soliciting customers or employees from the LLC for a certain period of time. Finally, the Operating Agreement can contain a nondisclosure or confidentiality clause prohibiting the member from disclosing any confidential information to third parties.

These are only a sampling of the various reasons why your LLC should have an Operating Agreement. By entering into an Operating Agreement, the members can decide what terms and conditions work best for the LLC, rather than depending on litigation to resolve problems at a later date. While having an Operating Agreement drafted by a qualified attorney may take some time and expense, it will certainly be worth it in the future where an unforeseen event or issue arises. In addition, knowing that the Operating Agreement is in place will allow the members to do what they need to do – operate the business profitably.