Author: marcsherman

Marc is the President and Founder of Marc D Sherman & Colleagues PC in Lincolnwood, IL. For over 38 years, Marc has represented individuals and businesses in a variety of Estate Planning, Probate, Business transactional and civil litigation matters.
Business Entities, Employment Matters, Noncompete Agreements

REVIEW OF NONCOMPETE AGREEMENTS IS REQUIRED BY NEW FTC RULE

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There has been alot of buzz about the Federal Trade Commission’s recently approved final rule prohibiting noncompete provisions in most circumstances. A review of the agreements that you have in place and that are likely to be used in the future is worthwhile.

Why the concern?

Employers have traditionally looked for strong ways to protect trade secrets and other confidential information, and to limit employees from infringing on their business interests. Noncompetition covenants, whether in employee handbooks or in separate agreements, have been a useful tool. Often just the threat of enforcement is a deterrent.

Many noncompetition agreements are unenforceable under the FTC’s new rule.

The FTC rule prohibits all noncompete restrictions for employees, independent contractors, interns, volunteers, apprentices, and even sole proprietors who provide services to business entities. 

There are carve-outs for existing and future noncompetition restrictions that are created for sale of a business, and for current restrictions on senior “policy making” executives who meet a salary threshhold. However, new noncompete restrictions even for senior executives are not permitted.

Are all Employer protections gone?

No. But thoughtful drafing is going to be needed.

The “noncompete clause” prohibited by the FTC rule includes any “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (a) seeking or accepting work in the U.S. with a different person or entity after the employment ends, or (b) operating a business in the U.S. after the employment ends.

Important restrictions on the activities of employees, independent contractors and others will remain and will be even more important to monitor and enforce.

Noncompete clauses that function during the term of work or employment are untouched. This may seem academic, but the specifics and enforcement will become more relevant. This is particularly true, since the implied threat of enforcement has traditionally been the strongest reason that an employee or contractor avoids future work that interferes with the former Employer.

Other worthwhile restrictions survive the FTC rule. For example, thoughtful use of Confidentiality Agreements and Non-Disclosure Agreements, including specifics for monitoring return of materials and information is necessary. These will become an essential Employer tool during and following a worker’s services in order to protect legitimate business interests.  And, of course, every business should review Trade Secrets guidelines and practices to see that they are tightly drafted, implemented and available for enforcement when necessary.

The Upshot? Take Action Without Delay.

Waiting until an issue arises to review your policies and agreements is like ignoring an annual trip to the dentist and waiting until the tooth begins to hurt. Preventive care of your business interests is good practice that can avoid significant legal costs and frustrations later.

Attorney Marc Sherman recommends that every business pull out and dust off existing policy manuals, internal agreements, and external independent contractor agreements for a critical review. Also, consider whether new focus on Trade Secret protections, Confidentiality Covenants and other restrictive clauses need to be implemented or whether current policies can be reasonably beefed up.

Clients who would like to review the FTC rule will find it here: https://ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf

Anyone who would like to discuss how this important topic affects their business and business interests can contact Marc Sherman by email to msherman@mshermanlaw.com.

Business Entities, Corporations, Limited Liability Company (LLC), Partnerships

Discuss Tax Issues For Your Entity Choice With Your Accountant [But Entity Formation And Planning Is Your Attorney’s Role]

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Your Accountant’s role in helping you select the appropriate business entity is key. Depending upon the nature of your business, the business relationships that you expect with partners, and other factors, the accounting and taxation considerations are going to be important for selecting the appropriate form of business entity.

However, we often see that some clients have engaged their Accountant to accomplish the business formation steps with the Secretary of State. Perhaps the client and Accountant were thinking that there is a fee savings. Perhaps the Accountant encouraged this additional step to be more involved in the entity setup. For many clients, it was not the best or the most cost-effective decision.

Focusing on the legal aspects of business creation and guiding you through the issues for consideration is an important role for your Attorney. When the Accountant begins the entity creation process, this implies that the Attorney’s involvement is a lesser concern or, worse, is not necessary. The client loses out.

The Attorney’s experience and training in a variety of legal areas provides an opportunity to consider much more than taxes and accounting elements relevant to you and your new business. Some examples bring home the point:

Considerations Of Potential Claims Can Guide Entity Choice.

What is likely to happen if someone tries to enforce a claim against the business? The business entity choice can provide limited liability in many instances. Still, there are some types of claims and business obligations that can be brought against owners or managers despite trying to protect themselves with the “corporate veil of limited liability.” Industry laws and regulations, some business laws involving labor and operations, and vendor and customer agreements and activities may provide unique considerations for your business model and your personal decisions.

Discussing your business entity choice and your business plan with your Attorney should take into consideration your personal assets (and obligations), and your Estate Planning that has been created or can be developed for you, and consideration for options that may become important if the business doesn’t go as planned.

For many entrepreneurs, the first time being involved with a significant claim in or out of court is an eye opener; particularly when the legal claim prompts the question: “How could this affect me personally and my family?” There are planning opportunities that are purposeful and useful. Considering those opportunities early and adapting to changes in the business in a timely manner are important.

Consideration Of Business Partner Activities And Disputes Can Guide Entity Choice.

The relationship between you and your business partners will frequently have many layers — even if your business partners are family or friends.

What are your expectations of the amount of time you will each give to the business? What expectations do you each have for investing funds for the business or for willingly participating in financing the business with loans or with a personal guaranty? What happens if your business partner can no longer provide their time, guidance and financing?

Are there consequences of having to unwind the business entity if things do not go as hoped, and how is that done? Should you be concerned if your business partner becomes disabled and can no longer participate or passes away and their interest in the business may go to their spouse or children?

The Attorney’s role? Discussing entity selection and its impact on business relationships. Creating a Shareholder’s Agreement or incorporating terms of future transfer of the business ownership interest in a Partnership Agreement or LLC Operating Agreement. Helping the business owners create and express their expectations.

Get Your Attorney Involved Early And Often.

From a tax and accounting standpoint, your Accountant will surely be adding value. Including your Attorney in the business planning early and often is equally and sometimes more valuable. Engaging your Attorney to assist with your business entity planning and business entity creation not only adds value, but also helps you make good decisions to preserve that value and to accomplish your business goals.

If you have questions about the cost of Attorney time to assist with business planning and business entity creation, you can reach out to Marc D. Sherman & Colleagues PC. If you have already set up your business entity, but you have not reviewed the considerations discussed here with an Attorney, we can also assist you and your business partners.

Real Estate, Real Estate Sales and Purchases

Your Real Estate Attorney And Your New Home Purchase; Reach Out Early

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Buying a home is much more than your investment in real estate. It is a part of your family’s estate plan. Younger homebuyers are taking the step to set down roots, raise their family and build equity in one of the most important life purchases they will make. Mature homebuyers likewise focus on community, but with a focus on securing value and preserving assets and equity for the benefit of loved ones who later inherit that value.

Don’t wait until you and your realtor have found your dream Home. Whether this is your first home or not, make the call to your Real Estate Attorney early. Marc D. Sherman & Colleagues P.C. is ready to help.

Helping You Understand Home Purchase Costs.

Your Real Estate Attorney helps you to understand the costs of purchasing your Home. Know and consider the out-of-pocket costs to be paid at the time that your contract offer is accepted. Also, be prepared and understand the costs you will pay at the purchase closing. Typically these costs of purchasing a home or condo are not in the hundreds but may be in the thousands of dollars.

The Real Estate Attorney explains how the real estate agent’s commission works. And there other costs and fees you need to be aware of, too. Your Real Estate Attorney helps you understand the usual costs, like pre-purchase inspections of the condition of the Home, and helps you know if there are taxes to be paid as a buyer at the time of your purchase (yes, Chicago has a VERY significant ‘welcome tax’ for home and condo purchasers). You should also understand and plan for how title charges and other fees will have to be paid at the time of the purchase. 

Do you understand how real estate taxes are paid in your community? Are there other taxes to consider, such as special assessment taxes? Will those taxes go up?

At the same time, you will be reaching out and identifying a mortgage broker. They need to be on the top of your list. Understanding the cost and availability of mortgage financing is perhaps the most important element in the home purchase process. The Real Estate Attorney can stay on top of your mortgage professional’s efforts.

Selecting Your Broker and Understanding The Purchase Contract Process.

Your Real Estate Attorney will help you to understand what is involved in selecting a real estate broker and many important aspects of your real estate purchase contract as it is prepared when you find your new Home.

Your Attorney can explain special contingencies in your Contract offer to the Seller, such as the home inspection and mortgage financing contingencies, and the Attorney Review period that is a part of each standard purchase contract.

Your Attorney can explain the importance of closing and possession dates, including the importance of planning for the end of your current lease or selling your current residence, and particularly with new construction.

And, if you are looking to purchase in a community with a homeowner’s association or in a condominium property, your Real Estate Attorney can help you understand the many considerations that accompany such a purchase. How do you learn if there are special assessments being paid or that are being considered by the homeowner association? Will you be responsible for the assessments? Is there an opportunity to negotiate payment with the Seller? These are among the several considerations that your Real Estate Attorney can discuss with you.

Estate and Asset Protection Planning is an important part of the discussion.

Too often, first time homebuyers do not consider or understand how their new purchase fits into a discussion of their Estate planning. Sure, there is alot going on. It is a busy and exciting time. But the discussion need not be overly time-consuming.

Are you in a business? Are there potential liabilities that could affect you or your partner (like a personal guaranty of a business lease or contract) that should be discussed? Have you considered what happens to the ownership of the Home if you or your partner, or both, are sued? Not a fun topic, but a timely one.

Seasoned Homeowners trading up or downsizing should be particularly thoughtful about ownership of the new Home in their Living Trusts and other title ownership and succession planning vehicles that are useful and available There is no ‘one-size-fits-all’ approach.

What will this cost?

The answer often depends upon the nature of your Home purchase and your personal circumstances. Your Real Estate Attorney will charge a fee for their representation. If there are Estate or other personal matters to work on separately, the Attorney will discuss with you the difference between hourly and flat fee billing for those projects.

The bottom line: Your thoughtful and experienced Real Estate Attorney should be prepared to spend time to discuss these issues with you. The Attorney is one of your trusted resources while you are moving ahead with your purchase.

The Attorneys at Marc D. Sherman & Colleagues, P.C. would like to discuss your plans. Please reach out for a free consultation.

Estate and Probate, Estates Planning And Probate, Trusts

You Have Been Identified As An Executor Or Successor Trustee. Where To Begin?

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There are few responsibilities more emotionally trying than being called upon to settle the affairs of a loved one. If you have been selected to serve in the role of Estate Representative or successor Trustee, you have probably had no formal training for the steps that come next. Most people who have been asked to step up to the task have not had the opportunity to act in this capacity before.

            No two situations are exactly alike. 

            There are helpful directions for the Executor and Trustee roles, and a complete discussion would fill many more pages than provided here. But this is a good start… 

            Materials and Information To Collect:

            We recommend that you begin by gathering important and useful information, including:

  • Decedent’s Identification Items, such as driver’s license, passport, Social Security Card; and
  • Decedent’s personal and family records: Birth certificate, Death certificate (order at least 5, but more may be required depending upon the assets in the estate), marriage license, divorce judgment (including Marital Settlement Agreement), military service discharge documents; and 
  • Estate documents, including Last Will and Testament (and any Codicils), Trust Declarations and amendments, Land Trust records (if applicable), and insurance trust records (if applicable); and
  • Life Insurance materials, including life insurance policies, and the identity of life insurance brokers; and
  • Asset information, including real estate deeds or leases, timeshare interest documents and deeds, car and boat and other titles, financial information concerning bank and financial accounts, stocks, bonds, CD’s, annuities, retirement accounts, and information concerning any other assets (whether or not you can determine now whether or not there is a significant value); and
  • Debt information, including mortgage documents, home equity loan documents, credit card statements for the past several months, personal loan information, student loan information; and
  • Business information, including details about the operation of a business as a sole proprietor, the operation of a business corporation or limited liability company, and partnership interests in general or limited partnerships. 
  • Unique Issues: Are there royalties from the creation of art or published or other works? Are there rights to receive continued payments from installment or other sales? Are there payments available and uncollected from family or other estates or trusts? Are there refunds available from any source? Are there airline mileage accounts, rebate accounts or other sources that should be reviewed?

The types of assets and debts or obligations are not the same from person to person.

Next steps:

Securing property and assuring continued communication are often the first and most useful steps to take:

Secure the home: 

Rental? Contact the landlord to be sure that they know who to reach in the event that access to the house or apartment is necessary. Find out whether rent has been paid current. If you haven’t located a copy of the current Lease, request that a copy be sent to you.

Who else has keys? Are there reasons to change the locks?

Are there others living in the home? If so, are the Decedent’s personal items secure or do they need to be removed from the premises to be sure that they can be handled appropriately? 

If the home or apartment is owned, have you determined if there is a mortgage or home equity line of credit? When was the last payment made? Are the real estate taxes current? If they have not been paid for an extended period of time, taxes may go to sale and an attorney should be contacted. 

Whether owned or rented, check that sump pump and HVAC systems are working and set to avoid freezing temperatures or hot weather extremes that may be damaging. Locate utility account information to make sure that accounts are not in jeopardy of being closed and utilities shut off. And check garbage/refuse removal, both in the home and at the street or alley. And, finally, assess the need for attention to clean-up. Do the fridge and freezer need to be emptied in order to avoid an unpleasant situation? Are bathrooms and other areas in need of attention?

Later, the Estate or Trust Attorney will review the listing of the owned home, the return of a leased home or apartment, and the importance of considering the date of death valuation of residential and investment property.

Make sure to also review other properties, timeshare interests, interests in real estate partnerships.

Secure Papers and Documents.

There is a value in having the opportunity to review both current and older documents. Some will be useful for tax filings, including consideration of Estate Tax issues. Other documents may be helpful to locate relatives and others of importance for the estate resolution process. If it’s a mess, then some time and attention may be necessary. But a wholesale clean-out, without considering the documents that exist, is often foolish.

Assess Financial Needs of Surviving Spouse and Dependent Children.

Does the Decedent’s family have access to funds for their day-to-day living needs? Is it possible that significant funds are going to be needed soon? Does the surviving spouse have his or her own source of income, credit cards, emergency funds? Should Social Security be contacted promptly in order to make sure that the surviving spouse has the benefit of an increase from the Decedent’s Social Security? And to assist dependent children in applying for Social Security benefits to which they may be entitled?

Funds may be more quickly available from life insurance proceeds, from jointly owned accounts or assets, or from other sources.

Set Up a Meeting with the Attorney and Accountant.

The two most valuable members of your team to assist with the resolution of the Decedent’s Estate or Trust, or both, will be the Attorney and Accountant that you retain to provide guidance.

The Estate Attorney will review your initial efforts, review the Estate and Trust documents that you have been able to locate, and will discuss the need for Probate Court involvement. 

Probate is not always necessary. The value and the type of assets in the Estate, will determine whether it is necessary to take steps to open a formal Probate in the County where the Decedent lived at their passing. Often a Small Estate Affidavit can be a means for out-of-court resolution of the Decedent’s assets. Your Estate Attorney can make recommendations and discuss the alternatives available.

If the Estate Attorney recommends that a Probate Case be filed, they will discuss with you the timing, the steps required, and the issues to be handled.

Whether or not a formal Probate Court filing is required, a meeting with the Accountant selected for the Estate is a must. The Accountant will review concerns, if any, about prior tax and other filings. The Accountant will assist with a review of the need for filing an Estate Tax Return, which is not always necessary, but is still sometimes important depending upon the circumstances.  And, the Accountant should also review whether there are tax consequences relating to distributions from insurance, from qualified accounts such as IRA’s and 401k’s, and other important issues. 

Do not delay the first meeting with the Estate Attorney and Accountant. Of course, a lot is going on. But these professionals will promptly help you to determine whether there are things that should be done more quickly than others, and with more caution.

Marc Sherman is available to set up an appointment to discuss these steps. 

Estates Planning And Probate

Continued Review Of Your Estate Planning Documents is Essential (Part 1: Tenancy By The Entirety)

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We often see clients who created their Will, Living Trust and other Estate Planning documents years ago, and who have put those documents in their file without continued attorney review. In many instances, there have been changes in living arrangements, changes in property and liabilities, and other significant life events that require attorney review and tweaks to Estate Planning and other documents. This is the first in a series of Estate Planning follow up recommendations:

Recommendation #1:  Your Home And Tenancy By The Entirety Protection:

Protecting your home, both during your lifetime and afterwards, is a key consideration. This is particularly true if there should be an event requiring a review for purposes of debt collection, bankruptcy or similar issues.

Tenancy By The Entirety (TBE) is a special form of property ownership for married couples in Illinois offering protection against creditor collection efforts and protection in the event that a bankruptcy becomes necessary. TBE title ownership is only available to married couples and only available for their principal residence. It does not have to be elected at the time of the property purchase. It can be added in the event of a subsequent marriage or at any time by an appropriate deed transfer. Review by your attorney is recommended.

Electing TBE ownership does not involve any additional expense. But if it was available and is  not used, TBE protection is not available.

Here is how it works:  When the marital home is held in TBE ownership, this ownership effectively provides additional security in the event that one or the other spouse is sued for an individual debt. Under Illinois law, the creditor of one spouse can only file the judgment as a lien against the home; the creditor cannot foreclose its lien while the home remains in TBE ownership. And if one spouse needs to file for bankruptcy protection, the bankruptcy trustee cannot reach the spouse’s interest in the home for the spouse’s creditors.

TBE does not protect the home against collection efforts involving joint debts of the owners. 

The concern? Tenancy By Entirety may not have been elected, even if it was available. 

More often, the TBE protection can be lost. And that is the reason that homeowners should review their Estate Planning and Estate Planning Documents routinely. These are some concerns and the key take-aways:

Don’t wait until there is a major liability or a need to seek bankruptcy or debt counseling.

            >  If a spouse is facing a significant illness, or if one or both spouses have moved to a new ‘principal’ residence, or if a divorce or separation is in the cards, considering the TBE protection for your property is a must.

            >  If a spouse passes away or if the marriage is ended, the TBE protection against creditors of either spouse is lost.

            >  If one or both spouses no longer has their principal residence at the home (regardless of the reason), the TBE protection against creditors may be lost or jeopardized.

            >  If the homeowners take action without discussion with an Estate Planning Attorney, the result of decisions made may significantly affect the TBE protection for the home. 

                        One real-life example:  A friend recommended that one spouse should be impoverished because of Medicare or other circumstances by transfer of the interest in the marital home. Yet there were other, pre-existing debts of the spouse, and the transfer of the home destroyed the TBE ownership and protection. The spouse who continued to own the home was sued by their creditor, and a judgment lien was filed against and attached to the entire interest of the spouse.

                        Another real-life example:  The client heard from a friend that they could avoid a probate at the death of one or the other spouse, without using a trust. The client decided on their own to add two children to the home deed while they were still alive. By doing so, the client inadvertently destroyed the TBE ownership and protection because the home no longer owned solely by a married couple. A judgment creditor sued, and the equity in the home was reachable for the debt.

Even well-intentioned efforts to transfer the home title into a land trust or to an Estate Planning Living Trust or other form of ownership could inadvertently cause a loss of the TBE ownership and protection. 

            >  If the marital home is transferred into a Land Trust, regardless of the reason, and the beneficial ownership interest in the trust is not retained by both spouses, or even if both spouses retained ownership, when the Land Trust Agreement fails to clearly state that the beneficial ownership is held as tenants by the entirety, then the TBE protection will be lost.  

            >  If the Estate Planning Attorney created a living, revocable trust for one or both of the spouses, and deeded the marital home into the trust, but failed to express in the Deed into Trust that the ownership will be treated as tenancy by the entirety, or if the transfer otherwise fails to comply with the Illinois law (765 ILCS 1005/1c), then again the TBE protection will be lost.

Important Action Steps:

            >  Discuss TBE ownership with your real estate attorney at the time of your purchase.

            >  Review your Estate Planning Documents and your title ownership for your real estate interests regularly; particularly if there are significant changes that have occurred or about to occur.

Your attorney can help you to create a good plan and can assist you by reviewing your existing Estate Planning Documents and your asset and liability picture.