LAW NOTES  

Fall 2024

PLANNING AHEAD: THE IMPORTANCE OF SUCCESSION PLANNING

Making formal arrangements for the transition of business or assets to the next generation, called succession planning, may seem overwhelming. However, succession planning is an essential process for any business or individual looking to ensure the smooth transfer of leadership and assets to the next generation. Effective succession planning involves making important decisions about who will manage the business, control assets, and inherit key roles. Without proper planning, families and businesses may face financial and logistical difficulties, which could result in conflicts and legal complications.

One powerful strategy in succession planning is the gradual transfer of ownership of the business, such as gifting shares of a family-owned LLC or corporation to heirs throughout the owner’s lifetime. Heirs are people who are legally entitled to receive a person’s property or assets when that person dies. Typically, heirs include close family members like children, spouses, and sometimes siblings or parents. This transfer of ownership can ease the tax burden at death and ensure the inheritors are prepared to take over key roles. For instance, by gifting shares over time, the owner reduces the overall taxable estate, preventing a scenario where heirs might have to sell assets to cover estate taxes. This strategy has the ability to alleviate the burden of one or more beneficiaries from having to purchase his or her siblings’ inherited shares of the business. This gradual transfer also allows the next generation to gain experience in managing the business while the original owner is still around to provide guidance.

           Early succession planning can also provide opportunities to alleviate tax burdens on inheriting individuals who might be subject to estate tax. Estate taxes, often called “death taxes,” are imposed on the total value of a person’s assets (or “estate”) at the time of death before those assets are distributed to heirs. A person’s estate includes everything they own, including real estate, personal property such as vehicles and jewelry, financial assets such as bank accounts, and any debts. Both the federal government and the state of Illinois impose estate taxes on estates with values in excess of the state and federal exemption levels. One estate tax reduction strategy is to make gifts below the federal gift tax threshold to help reduce one’s taxable estate. A couple, for example, each can gift $18,000 to each of their five children and their spouses, resulting in untaxed gifts totaling $360,000 and reducing the overall value of their estate by that amount.

Another strategy is to include specific provisions in estate planning documents, such as a trust or will, that address the payment of estate taxes. These provisions can specify how estate taxes owed at death should be paid out of the remaining assets before distributions are made to beneficiaries and can include directions as to how taxes should be shared among beneficiaries, ensuring clarity and fairness. However, these strategies need to be carefully planned to maximize benefits and avoid unintentional consequences.

There are various strategies to reduce the impact of estate taxes. Each estate planning situation is unique and is dependent upon individual circumstances. Proactive succession planning with the assistance of qualified legal or financial advisors offers numerous advantages beyond tax savings. It provides clarity on who will take over leadership roles, ensures business continuity, and reduces the emotional and financial strain on heirs. By starting early, business owners and individuals can implement strategies that protect the interests of their families and businesses, creating a lasting legacy.

           IRS Circular 230 requires that certain types of written advice include a disclaimer. To the extent the preceding message contains written advice relating to a federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer for the purposes of avoiding federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein. If you have any questions regarding estate planning or estate tax consequences, please contact an attorney for more information.

ILLINOIS LANDLORD AND TENANT LAW UPDATE

Illinois tenants are now entitled to certain information regarding radon, a colorless and odorless gas that poses significant health risks. As of January 1, 2024, the Illinois Radon Awareness Act now requires landlords to provide tenants with information about radon in their homes. This amendment applies to all landlords, whether individuals, businesses, or government agencies, who lease any type of dwelling unit, including mobile homes, single-family homes, apartments in multi-family buildings, and units in mixed-use buildings.

The law requires landlords to provide tenants with a pamphlet approved by the Illinois Emergency Management Agency, copies of any records related to radon levels in the dwelling unit, and a disclosure form. These documents must be given to tenants at the time of their rental application, before signing a lease, or anytime during the lease if the tenant requests them.

At the beginning of a lease, tenants have 90 days to conduct their own radon test. If the test reveals radon levels above the recommended Radon Action Level of 4.0 picocuries per liter of air (pCi/L) and the landlord does not take action to reduce the radon, the tenant has the right to terminate the lease. If a landlord fails to provide the required radon information, tenants may conduct a radon test at any time during the lease. If the test shows a radon hazard and the landlord neither disputes the results nor mitigates the hazard within 60 days, the tenant may either hire a radon contractor at their own expense or terminate the lease.

Illinois Security Deposit Returns Now Come With Added Requirements

Effective January 1, 2024, an amendment to the Illinois Security Deposit Return Act changed how landlords must handle security deposits. Under the amended law, landlords cannot keep any portion of a tenant’s security deposit without first giving the tenant a detailed list of damages to the property. This amendment applies to landlords who have collected a security deposit from a tenant for rent or for covering damage to the rental property.

To keep any part of a security deposit, the landlord must provide the tenant with an itemized statement that outlines the specific damages and the actual or estimated costs of repairing or replacing each item. Additionally, landlords must include copies of paid receipts for any repairs or replacements along with the itemized statement. These documents must be provided to the tenant within 30 days after the tenant moves out or within 30 days after the tenant’s right to possession of the property ends, whichever is later.

           If a landlord does not provide the required itemized statement and receipts within the 30-day period, they must return the full security deposit to the tenant within 45 days of the date the tenant moves out. If a court finds that a landlord has violated the Act, such as by providing a false itemized statement or failing to return the security deposit on time, the landlord could be liable for twice the amount of the security deposit, along with court costs and reasonable attorney’s fees.

A complete discussion of  landlord and tenant legal updates is beyond the scope of this article. Please contact an attorney regarding these changes or legal matters related to this area of law.

NEW ILLINOIS FREELANCE WORKER PROTECTION ACT:

Big changes are coming for freelance workers and those who hire them in Illinois. The Illinois Freelance Worker Protection Act took effect on July 1, 2024. This Act requires most individuals and businesses in Illinois to provide freelance workers, also known as independent contractors, with a written contract if they are paid $500 or more for work completed within a 120-day period. This requirement applies to contracts that take effect after July 1, 2024.

Under the Act, a freelance worker is someone hired as an independent contractor to provide products or services in Illinois or to a hiring entity based in Illinois. However, the Act does not apply to individuals performing construction services or certain other workers excluded under the Act. The hiring entity, or contracting party, can be any person, business, corporation, or legal entity hiring a freelance worker, with limited exceptions provided under the law.

The Act requires that a contract for services or products provided by a freelance worker must include certain information. Upon completion of the work, hiring parties must keep a copy of the contract for at least two years.

Violations of the Act can result in significant penalties. If a hiring party fails to pay a freelance worker within 30 days after the work is completed, the worker can recover double the unpaid amount, along with court costs and attorney’s fees. If the hiring party does not provide the required written contract, the worker can recover statutory damages of $500 or the value of the contract, whichever is greater. The Illinois Attorney General’s Office can also impose fines up to $10,000 for repeated violations.

Since this law is newly enacted, it may be subject to changes. If you have questions or concerns about the new law, please consult with an attorney.

CORPORATE TRANSPARENCY ACT REPORTING DEADLINE LOOMS

           Business owners should be aware that the deadline for compliance with a new federal law is quickly approaching. The Corporate Transparency Act, which went into effect on January 1, 2024, requires most small businesses to register with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This law applies to a wide range of businesses, including corporations, limited liability companies (LLCs), and other similar entities that are created or authorized to operate by filing documents with the Secretary of State or a similar office. Failure to register could lead to severe penalties, including fines of up to $10,000 and up to two years in jail.

Businesses that qualify under the Act must provide detailed information about the company, its beneficial owners, and the individuals who helped form the company through a portal on the FinCEN website. For companies established before January 1, 2024, the deadline to submit the required information is January 1, 2025. Businesses formed after January 1, 2024, have 90 days from their formation date to report. Once the required information is reported, businesses must update FinCEN if there are changes in the reported details. In such cases, the business must report the updated information within 30 days of the change.

Given the complexity of determining whether your business is subject to these reporting requirements, it is strongly recommended that you consult with a legal advisor. If you have questions about how the Corporate Transparency Act applies to your business, do not hesitate to seek legal counsel to ensure compliance.

REMINDER FOR ILLINOIS EMPLOYERS: PAID LEAVE PROVISIONS EFFECTIVE NOW

Effective January 1, 2024, the Paid Leave for All Workers Act requires that most employers in Illinois, regardless of their size, must provide employees with up to 40 hours of paid leave each year. This requirement includes part-time and temporary workers. Under the Act, paid leave accumulates at a rate of one hour for every 40 hours worked. Employers must pay employees their full wages when they take leave. This includes ensuring that tipped workers receive at least the minimum wage. Employees are not obligated to explain why they are taking paid leave.

Employers must display a notice outlining the Act’s requirements. Employers must also keep accurate records of the hours each employee has worked and the paid leave accrued, used, and remaining for each employee.

Existing leave policies may already meet the requirements of the Act if they provide at least the minimum leave or vacation required and allow employees to use leave for any purpose. Please contact an attorney with questions or concerns regarding this Act or legal matters related to employment law.

OFFICE NEWS

           In May, Attorneys Weller and Endress had the opportunity to present a seminar on considerations for business and non-profit succession planning to Greater Freeport Partnership members.

              In June, Attorney Endress presented at the Citizens State Bank agricultural outlook meeting, where she shared about wills, trusts and general estate planning considerations for farming families. 

              Attorney Bridget Trainor has joined the Freeport Public Library Foundation. She is excited to serve in this new role.

If you would like us to conduct a seminar regarding a legal practice area, please contact us at (815) 233-1022.

Please visit our website for past Newsletters and additional information about our firm at

https://www.etwlawyers.com/.