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February 14, 2017

Good Advice for Everyone: Ten Steps to Avoid Big Trouble

This column was originally published in the Grand Rapids Business Journal on February 10, 2017 and is republished with permission.

On both a business and individual level, there are ten easy steps you can take now to avoid big trouble later. If you address just five of these items this month, you will be half way there.

1. Get a Shareholders Agreement in Place -- If you own a business and have co-owners, put a Shareholders Agreement in place. This agreement will describe what happens if someone wants to transfer their shares, dies, goes bankrupt, etc. Consider obtaining life insurance on the owners to provide cash to buy out their estate if a co-owner dies.

2. Get a Will or Update Your Old Will -- You knew this one would be on the list. It's easy to put off. It will cost a few dollars, but not having a will leaves a financial headache for your family in addition to grief. Even if you have a will, get it updated if it's more than 10 years old or if you have had changes to your family or financial situation. Don't forget the children. Even young adults should have a simple will in place together with powers of attorney. After your child turns 18, you no longer have the automatic right to make health care decisions for them if they are incapacitated. It's a good idea for young adults to have some simple estate planning documents in place.

3. Health Care Directives and Powers of Attorney -- These documents designate who can make decisions for you if you are not able to act on your own. You should have Powers of Attorney for both medical and financial matters.

4. Update Your Beneficiary Designations -- For many of us, our 401K or IRA is our biggest single investment. These plans allow you to designate who gets your account when you die. The plan, not your will, determines who gets the assets. Divorce and remarriage can often trip people up if you leave your former spouse as a beneficiary. This is further complicated by federal laws that require 50 percent of the account to go to your spouse regardless of what your beneficiary designation says. Distributions from these accounts are typically subject to income taxes, so consider the income tax consequences when designating beneficiaries.

5. Get Plenty of Life Insurance -- Studies estimate that 40 percent of adult Americans have no life insurance. Term insurance is relatively cheap. You can talk to your insurance agent or shop online. Life insurance is much cheaper when you are healthy, so get plenty now before a health problem increases your rates.

6. Get Uninsured/Underinsured Auto Coverage -- You may already have a decent amount of auto insurance. But a shocking number of other people are driving around Michigan without any, with estimates at around 19 percent! Further, other drivers may have only minimal coverage limits. That can limit your ability to be fully compensated for injuries and other damages above the personal injury protection provided by your own insurance. You can protect yourself by making sure that your policy includes an appropriate amount of uninsured/underinsured coverage.

7. Get Umbrella Coverage -- You may already have auto and homeowners insurance, but do you have enough? If there is a really bad accident and you are at fault, your liability could exceed your insurance coverage. Say you have an auto policy with a $500,000 liability limit. That helps, but if you are liable for more than $500,000 as a result of a catastrophic accident then your personal assets at risk. "Umbrella" insurance is extra liability insurance above the limits of your auto, homeowners and boat insurance policies. Your insurance agent can give you a quote for additional insurance, usually sold in million-dollar increments. $1,500,000 of liability coverage is obviously better than $500,000.

8. Back Up Your Data -- For business owners, it is imperative that you have a reliable backup system in place for your electronic data. Maybe you already have an IT person. Or you can sign up for services to back up to the "cloud" or create your own backups. But don't forget about your home computers. If your computer fails -- and it will someday -- you could lose all your documents, spreadsheets and all those digital photos you took over the years. 

A simple solution is to back up to the cloud using a service such as Carbonite. To be extra safe, I back up my home computer to the cloud and also to an external hard drive. I needed that back up when my computer failed a few years ago. You can buy an external hard drive for less than $100. Then copy your documents and pictures to that drive and store it somewhere safe. Consider keeping a backup off site in a bank safety deposit box.

9. Get an Online Password Vault -- I miss the old days when the only password I needed was for the ATM. In today's world, many of us have dozens of logon passwords and they are hard to remember. One solution is to get software that acts as a "vault" for all passwords. I use dashlane brand software which stores all my passwords in one secure place that I can easily look up. Better yet, the software automatically fills in my username and password when I need them. The vault software works on your smartphone, laptop and desktop.

10. Ward Off Identity Thieves -- At www.annualcreditreport.com you can get a free copy of your credit report once a year. Take a look, you may be surprised what you find.

Sometimes there are old credit card and retailer accounts that should be closed. Sometimes the credit bureau has made an error or has bad information. Worse yet, maybe you are the unwitting victim of identity theft and someone has opened an account in your name that you know nothing about. Maybe the identify thief has already racked up debt and late payments. To fix an error, you first have to see the error.

You can also consider identity theft insurance. If your identity is stolen, insurance can cover both your loss and provide a case manager to deal with the hassle of sorting it all out. Check with your insurance agent.

As Benjamin Franklin liked to say "an ounce of prevention is worth a pound of cure." Now I have to take my own advice and get some of these things taken care of.

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