Suttons Bay Law

On September 2, 2009, John Buckley, Chief Tax Counsel for the House Ways and Means Committee, shared his opinion regarding the future of the federal estate tax: “I think you will probably see a one-year extension based on the statutory pay-go.” Mr. Buckley was referring to the Statutory Pay-As-You-Go Act of 2009 (H.R. 2920). This bill passed the House in June, 2009. If enacted, it will undo some currently scheduled expenditures and tax provisions, including the previously scheduled permanent extension of the estate and gift tax at 2009 levels.

The permanent extension of the $3.5 million exemption, coupled with the 45% top estate tax, would cost the government $233 billion over 10 years. With a ballooning federal deficit, it is quite probable that the Senate will not pass a permanent estate tax extension but will instead extend the 2009 estate tax provisions for one more year.

This one-year “patch” still leaves the estate planning world in a state of uncertainty. With the large budget deficit numbers, Congress could decide to enact new legislation to revert the estate tax credit to its pre-Bush administration level of $1 million beginning in 2011. If that happens, individuals need to carefully review their estate plans and be in contact with their estate planning attorneys to determine the full impact such a reduction in the credit will have on their estates at death.

Stay tuned for ongoing updates regarding the status of the federal estate tax as Congress wrestles with it in the future.

Dan A. Penning

Tags: Estate Planning, Know it Now by Dan Penning
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Two recent decisions from the 6th Circuit Court of Appeals in Cincinnati show how careful employers must be to avoid discrimination claims and violations of the Family and Medical Leave Act (FMLA). In the first case, Sanford v. Main Street Baptist Church Manor, Inc., the Court found that the employer had not taken sufficient steps to protect against sexual harassment in the workplace. In the second, Hunter v. Valley View Local Schools, the federal appeals court ruled that an employee may bring a claim under the FMLA so long as she can show that her use of FMLA leave was at least a “factor” in the employer’s decision to take adverse action against her.

In Sanford, the Plaintiff-employee sued the employer for an alleged sexually hostile work environment. As a defense, the employer argued that it had exercised reasonable care to prevent and correct any sexual harassment that the employee might have suffered. Normally, if supervisors and superiors take appropriate action, the employer will not be held liable based on inappropriate remarks or comments “on the floor” that might be offensive to other co-workers. But the decision in Sanford makes clear that employers cannot escape liability if they have not taken actual steps to weed out and discourage intimidating or harassing behavior. Specifically, the judges from the 6th Circuit were concerned that the employer’s handbook did not force supervisors to report harassing conduct. Nor did it offer a process for informal or verbal complaints. Nor did it give the employee the option to bring a complaint to someone else in management where the supervisor was the alleged harasser. Finally, the Court took note of the fact that the employer had not conducted any sexual harassment training in the workplace. For all of these reasons, the Court determined that the employer had not shown “reasonable care” to prevent sexual harassment in the workplace.

In Hunter, the Plaintiff-employee had returned to work with certain medical restrictions after being out on FMLA leave. The employer forced her to take an unpaid medical leave for up to one year. She sued, arguing that the forced leave was unlawful retaliation for her exercising her right to leave under the FMLA. The employer argued that, even if her FMLA leave had been one reason for forcing her to take unpaid medical leave, it was not the only reason. Because the medical restrictions limited her ability to perform, the employer claimed it had a legitimate reason to require the medical leave.

In a significant ruling, the 6th Circuit determined that a plaintiff may bring a claim for retaliation under the FMLA if his use of FMLA leave was one of the factors that caused the employer to take an adverse employment action – even if the other factors were lawful. Thus, in “mixed motive” cases under the FMLA, employers will not be able to defeat claims simply by showing they had a legitimate basis for their decision where improper bases also entered the decision-making process.

In difficult economic times, employees are more likely than ever to pursue any plausible basis for economic recovery. Employers should review their employee handbook and their employment practices very carefully to minimize the risk of unwanted and unintended employment claims.

Dan A. Penning

Tags: Employment Law by Dan Penning
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Michigan recently enacted legislation adopting a new “hybrid” business entity—the “L3C,” a low-profit limited liability company. The L3C is designed to promote private investment and philanthropy/social welfare through a single corporate entity.

Individuals and institutions with the means to invest traditionally look either to private enterprise or to charitable giving. If investing for-profit, the investor typically seeks an expected rate of return over 5%; if giving to a non-profit, the donor expects a flat 0% (or negative) rate of return. The Low-Profit Limited Liability Company is able to bring together a variety of entities, such as foundations, trusts, endowments, pension plans, individuals, corporations, other nonprofits and governmental entities to achieve social aims while working pursuant to for-profit status within the 0% to 5% gap. Like the basic LLC, an L3C enjoys the liability protection of a corporation and the organizational flexibility of a partnership. Another advantage is its qualification as a Program Related Investment (PRI) for non-profit entities. Non-profits are permitted to invest in for-profit projects if the project qualifies as a PRI under the tax code. So as not to impair its non-profit status, however, the entity must obtain a costly private letter ruling from the IRS to determine whether its investment qualifies as a PRI; thus, very few non-profits undertake the risk of investing in PRIs. The L3C’s operating agreement, on the other hand, can specifically provide for its qualification as a PRI, thereby protecting its tax exempt status.

Furthermore, an L3C allows access to more investment resources due to the ability of the members to establish layered investing. For example, if a local business determines that it is moving its operations overseas because its current rate of return is 3.5% and it could be more profitable if it invested its resources elsewhere for a rate of return of 7%, the local community loses jobs. A foundation could decide to organize an L3C and attract outside investors to partner with the L3C to purchase the physical plant and operate a business that saves the community those jobs that would have been lost. The Operating Agreement could provide that the foundation has a very low rate of return and its interest is subordinate to all the other investors. The foundation may agree to invest 60% of the capital but receive only 30% of the membership share, and further subordinate its membership to the other investors, allowing the other investors to be paid first, before the foundation. The ability of the foundation to provide capital to the L3C at less than a market rate of return and at a higher risk, lowers the investment risk of other investors while increasing their prospective rate of return.

Layered investing offers flexibility based upon the requirements of the investor. This opens an entire new arena from which nonprofits can engage and partner with an abundance of other entities to achieve important social objectives while permitting profits, within limitations, and attracting investors who may have been previously constrained by fiduciary responsibilities from pursuing philanthropic goals.

Tags: Business Management/Law, Know it Now by Dan Penning
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If your company has a federal contract, you should take notice of the federal government’s requirement that all federal contractors use E-Verify to check the employment eligibility of newly hired workers. A coalition lead by the U.S. Chamber of Commerce and the Society for Human Resource Management (SHRM) has filed an emergency request seeking to delay the rule’s implementation. Unless they obtain a last minute reprieve, the requirement will take effect today. For more information on how E-Verify will work and what it will mean for your business, go to The United States Citizenship and Immigration Services’ (USCIS) website, or join the webcast hosted by SHRM this Thursday at 2:00 p.m. eastern time by visiting http://www.shrm.org/multimedia/webcasts/Pages/legislativewebcast.aspx.

Tags: Employment Law by Dan Penning
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In response to concerns that people are declining to take medically valuable tests for fear they will face discrimination or invasions of their personal privacy, the federal government has passed the Genetic Information Nondiscrimination Act (”GINA”). GINA’s purpose is to prohibit discrimination on the basis of genetic information with respect to health insurance and employment. Title II of GINA, which takes effect November 21, 2009, relates specifically to employer practices, and prohibits employers from using genetic information for hiring, firing, promoting, or otherwise discriminating against an employee based on the employee’s genetic information.

GINA does not apply to employers with 15 employees or less, but state laws may impose additional conditions beyond GINA. As with many other federal laws, GINA establishes baseline regulations for employers nationwide, but individual states are permitted to impose stricter regulations above and beyond that provided by federal law.

Genetic information includes the individual’s genetic tests, genetic tests of family members, genetic tests of a fetus or embryo of the individual or family members, manifestation of a disease or disorder in family members, and the request for, or receipt of, genetic services or participation in clinical research. While there are exceptions to the information an employer can request or require, employers should now take greater caution when dealing with employee’s genetic information, and should consult an employment attorney to ensure compliance with both GINA and applicable states laws.

Dan A. Penning

Tags: Employment Law, Know it Now by Dan Penning
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Michigan Trust Code Becomes Law

On June 18, 2009, the new, Michigan Trust Code (MTC) was signed into law by Governor Granholm. In adopting the MTC, Michigan becomes the 23rd state to revise its laws pertaining to trusts in order to reflect the Uniform Trust Code as promulgated by the National Conference of Commissioners on Uniform State Laws. The MTC recognizes that revocable trusts in particular have become increasingly popular as a means to settle one’s affairs at death, as opposed to nothing more than a simple Will.

Although the MTC totally replaces existing Michigan black-letter law pertaining to trusts, only a few provisions of the MTC are significantly different from current law.

The first change deals with the mental capacity of a person to make a trust and a Will. Whereas Michigan law has recognized different standards in the past, the MTC clearly provides that the same standard of capacity will apply to both Wills and trusts. And, that standard has been modified to bring it in line with the standard of capacity to execute other estate plan documents such as powers of attorney.

The second change recognizes the authority of “trust protectors.” A trust protector is a person or persons designated in the trust with the authority to direct certain actions under certain circumstances. The authority of a trust protector can thereby supersede the authority of the trustee. Although Michigan attorneys have used the concept of trust protectors in the past, their authority has never been recognized under Michigan law. The MTC provides for, and recognizes, the authority of trust protectors.

As with EPIC, many of the provisions of the MTC are default rules, that is, fallback rules that will apply in the event that the creator of the trust does not provide otherwise. As with prior law, however, there are a number of rules that cannot be modified by the creator of the trust.

If you have not created an estate plan, or have not reviewed or updated your plan in recent years, now is an excellent time to make sure that your wishes for the disposition of your assets at death are properly secured.

Dan A. Penning

Tags: Asset Protection, Estate Planning, Know it Now by Dan Penning
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