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Requirements to Protect Personal Information

Like many business professionals, your laptop and cell phone have become a corporate archive of important and confidential business information about your company. Smart phones have allowed sensitive data to be available at your fingertips that can be carried most anywhere. Identity thieves can have an easy time of accessing data that is legally protected if you don’t address security issues in your overall Information Technology plan. Many businesses find it more cost-effective to secure the information they have rather than try to repair the damage and rebuild consumer confidence after a data loss or breach. Moreover, federal and state laws require companies to implement reasonable information security practices. Depending on your business and the type of information you keep, these laws may apply to you.

A single basic standard for data security
The Federal Trade Commission has tried to develop a single basic standard for data security that strikes the balance between providing concrete guidance, and allowing flexibility for different businesses’ needs. The standard is straightforward: Companies must maintain reasonable procedures to protect sensitive information. Whether your security practices are reasonable will depend on the nature and size of your business, the types of information you have, the security tools available to you based on your resources, and the risks you are likely to face.

Simple security tips
High standards of data security should be implemented on portable electronic devices that store or provide access to sensitive information, such as employee and customer information. Many smartphone and laptop users, however, ignore simple security measures. Here is a list of simple security tips that will help keep your data confidential

Passwords.
Avoid jotting down your passwords on a sticky note in your laptop bag. Don’t use shortcut keys to program passwords, access codes, or credit card numbers. Find ways to memorize your passwords and use strong passwords that consist of numbers and letters.

Don’t collect and keep data unnecessarily.
If you don’t have a valid business reason to collect personal information, don’t ask for it in the first place. Review the forms you use to gather data — like credit applications and fill-in-the-blank web screens for potential customers — and revise them to eliminate requests for information you don’t need. Before traveling, check your carry on, smartphone, and laptop for data that shouldn’t go with you. Unless you have a legitimate business justification, don’t hold onto customers’ credit card information, including account numbers and expiration dates. Keeping sensitive data longer than necessary creates an unwarranted risk for fraud. Don’t use Social Security numbers as employee identification numbers or customer locators.

Keep things in sight.
According to a company that insures personal computers, 10% of laptop thefts occur in airports. Keep your eye on your electronic devices when going through airport screening. Don’t put your cell phone or computer on the conveyor belt until the person directly ahead of you has made it through the metal detector.

Laptop and smartphone screens.
Consider buying a filter for your laptop/smartphone screen if you work on confidential documents while you travel.

Hotel business center. Don’t inadvertently leave printed documents on the printer/copier/fax machine.

Cell phone conversations.
Sensitive information can be blurted out during loud cell phone conversations. Remind yourself to keep your guard up in public.

Home computers.
Companies with a diligent IT department may keep the companies computers and other electronic devices up-to-date with the latest firewall, anti-virus, and anti-spyware protection and the latest security patches, but if your home computer is used even occasionally for business, robust security software should be installed and kept up-to-date on home computers as well.

Storage.
When discarding or recycling old computers and cell phones, deleting files using keyboard commands is not sufficient because data remains in a device’s memory. Ideally, you should destroy the hard drive or memory device.

Have a written policy in place.
If you must keep information for business reasons or to comply with the law, develop a written records retention policy to identify what must be kept, how to secure it, how long to keep it, who’s authorized to access it, and how to dispose of it securely when you no longer need it.

For more information, see the FTC’s guide Protecting Personal Information: A Guide for Business.

Dan A. Penning

Check Fraud: Who Pays?

More and more checking account owners are using their debit cards or online bill paying methods. With these rising trends, checkbooks are left unaccounted for, for periods of time. Check fraud can occur in one of many ways, such as (1) the victim writes a check but it is intercepted by a third party who fraudulently alters the check, (2) a third party creates an entirely new fraudulent check from the information on the real check, or (3) checks are stolen from the victim and the third party writes fraudulent checks, forging the victim’s signature. For purposes of this article, the victim is a customer of the bank that charges the payor’s (the victim’s) account.

An important defense
Safeguarding your checkbook is an important defense if the financial institution insists upon you, as the victim, being responsible for the fraudulent charges. The Michigan Uniform Commercial Code makes the bank strictly liable to make the victim whole but an exception typically applies. If the victim’s failure to exercise ordinary care “substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument,” and the bank paid the instrument in good faith, the victim will have difficulty succeeding on a claim against the bank. If the bank also “substantially contributes to the loss,” the loss is apportioned between the bank and the victim. Each party has the burden to show that the other party failed in its exercise of ordinary care.

Hazard of keeping your checkbook in plain sight
For example, if you have caregivers, other domestic help, or contract workers that enter your home to perform various duties, and your checkbook is kept in plain sight or in an unlocked drawer or cabinet, the bank will generally assert that you failed to exercise ordinary care in the safeguarding of your checkbook and therefore, the bank will argue that it is not liable to restore your account balance the amount of the fraud. The victim is then left with the options to sue the bank or attempt to arrive at a settlement amount that will allow the victim to recover a portion of the fraudulent charges, including overdraft fees.

Exercising ordinary care
Significant sums have been stolen from victims in a short period of time because they did not properly safeguard their checkbooks. The law provides that a bank is strictly liable for paying on instruments that are not properly payable, i.e. forged, but the exception of the victim not exercising ordinary care is typically applicable and therefore, the victim can be responsible to restore all or a portion of the fraudulent amount to their checking account or risk collection proceedings and possible litigation.

Dan A. Penning

Family Business Succession Planning – New Opportunities and Benefits Available for Family Businesses and Their Owners

Planning for the succession of ownership and operation of the family business for next generations presents many tax and non-tax challenges for the family business owner. Oftentimes, keeping the family business in the family involves having to choose between implementing strategies to accomplish tax benefits at the expense of implementing other strategies that may provide a greater likelihood the business will continue to prosper and be managed properly in the future.

Substantial yet limited opportunity
Well, as is addressed in the article below, Congress presented family business owners an unprecedented planning opportunity by enacting the legislation extending the Bush era tax cuts and expanding the estate and gift tax credits at the end of last year. While the opportunity is substantial, it’s limited and likely to undergo changes and possible repeal at the end of a short 2 year window with the current law set to expire at the end of next year, 2012.

Take advantage now
The new law and tax planning opportunities it has made available should have even more family businesses considering planning opportunities even earlier in the current generation/owners’ lifetime. As a result, even relatively young family business owners should at least be initiating discussions with their financial and legal advisers on developing a strategy to take advantage of current opportunities that may not be there a few years from now.

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Family Businesses Catch a Big Break

By Anne Tergesen
Wall Street Journal

It is the gift tax that keeps on giving.

Families now have the chance to pass a substantial stake in their businesses to the next generation—even before handing over the reins. But transferring ownership can raise complicated succession and estate-planning issues that families need to address before giving away so much as a share of stock.

To recap: As part of the tax deal passed by Congress late last year, the gift-tax exemption jumps to $5 million from $1 million for individuals and to $10 million from $2 million for couples in 2011 and 2012.

Yes, that means people can give away that much now without paying a penny in taxes.

“We have a golden opportunity to move wealth at no tax cost,” says Mark Nash, a partner in private-company services at PricewaterhouseCoopers. And those who make a gift now, tax-free, also shield future appreciation from taxes.

But the two-year window raises difficult questions for family-business owners. While those in charge don’t necessarily have to give up control, they may need to make some momentous decisions. Among them: who will eventually lead the business, how to treat other beneficiaries fairly and how to pass down wealth without jeopardizing their own retirement security.

The answers may determine which estate-planning techniques make the most sense for a family to use, says Patrick Ungashick, president of White Horse Advisors, an Atlanta financial-advisory firm that specializes in small businesses. Because decisions of this magnitude “cannot typically be made in weeks or even months,” he adds, “those who want to take advantage of the new gift-tax ceiling shouldn’t wait to start planning.”

Over the next two years, Terry Davis, 53 years old, says he plans to transfer to his two sons a portion of his stake in The Wire Shop Inc., a Fort Valley, Ga., manufacturer of wiring used in heating and air-conditioning units, among other products. Because Mr. Davis, who also is the CEO, doesn’t intend to step down for eight years, he plans to give his sons nonvoting shares. “I’d like to keep control,” he says.

By giving away some of his stock now, Mr. Davis says, he won’t have to worry that his sons could be forced to take on debt or sell the company at a “fire-sale price” to satisfy the estate-tax bill they otherwise may incur upon his death.

Yet such a move causes a new anxiety for Mr. Davis: Before his oldest son, Austin, 28, joined the company in 2006, his “exit plan was to build up the value of the business and sell it.” Now, with most of his assets tied up in the business, he says, “it’s a challenge to see how to fund my retirement.”

Mr. Davis says he recently upgraded his company’s retirement plan from a Simple Individual Retirement Account plan to a 401(k). As a result, he will receive a company match and can contribute a maximum of $22,000 this year, versus $14,000 with a Simple IRA.

He also may exercise an option to purchase the building his company rents. That way, he can lease it back to the company for an amount that will leave him with an income after covering the mortgage.

For those in Mr. Davis’s shoes, other possible solutions include establishing a profit-sharing or defined-benefit pension plan, or staying on the job as a salaried employee, consultant or paid chairman. Those who paid themselves below-market salaries during lean times may be entitled to recover “lost wages.”

Some family businesses even establish “salary continuation plans” to provide one or more key employees with a regular paycheck for a set number of years in retirement. To pass muster with the Internal Revenue Service, such programs should generally be established well ahead of an owner’s retirement and pay “reasonable” amounts, White Horse’s Mr. Ungashick says.

Another option to generate retirement income: Rather than give away shares—either outright or in a trust—you can sell them to a so-called defective trust for the benefit of children or grandchildren.

These complex arrangements come with many tax benefits. They typically involve the sale of shares in a privately held company at a discount, and a loan—plus a gift—from the business or its owner to finance the purchase. Since the trust purchases the shares at a discount, the beneficiaries can keep the excess value, plus any appreciation, estate-tax-free. And if structured properly, the business owner won’t owe any capital-gains tax on the sale’s proceeds, which can be used to fund his or her retirement.

However the gift is made, business owners should consider it in the context of an overall estate plan, consultants say. A decision to transfer assets to some children now can raise awkward questions about the timing, nature and size of gifts to others.

Consultants frequently advise families to earmark assets outside a company for those who aren’t on the payroll. That way, the child who takes over can manage the business without having to consult siblings, some of whom may press for fat distributions.

If you don’t have other assets to give away, some experts recommend you or the business purchase a life-insurance policy in a trust in order to shelter the death benefit from the estate tax.

Email: familyvalue@wsj.com

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Dan A. Penning

Article Source: Wall Street Journal. Click here to visit the Wall Street Journal