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Dear Gambler,
My, my…you certainly are
living up to your moniker, Gambler! Put the dice back in your
pocket a minute, and let’s think this thing through. Your
friends may have been a bit hasty in suggesting a Nevada
Corporation to write off your house payment and utility bills.
First, an individual (or
family, for that matter) is usually not a business, and the
type of corporation you’re referring to assumes some sort of
business purpose. A corporation is a legal entity, and one of
it’s most important features is limited liability, but there’s
a whole lot more to it. TOP
Next, I have to wonder
what sort of “future personal credit problems” you’re
anticipating. Should you incorporate in order to avoid paying
off your debts, you may be committing something called
“fraud”. Going to jail won’t show up as a particularly
honorable mark on your resume.
What
you’re looking for, Gambler, is something financial planners,
insurers and lawyers work with all the time, and it’s called
“Asset Protection”. It’s quite possible that a Nevada
Corporation is the answer to your specific situation, but I
doubt it. The best way to find out is to contact an estate
planning attorney and discuss your needs. The National
Association of Estate Planning Councils can suggest someone in
your area if you don’t know one. Check out
www.naepc.org and click on the “Look for an Accredited
Estate Planner”. TOP
If you really do have a
business, then I still recommend talking with an
estate-planning attorney and a tax accountant, if you haven’t
already done so, to determine the best entity for your
particular business.
The way corporations
“limit liability” is not by hiding assets, but by making the
business entity an unattractive target for a law suit. A
common example might be a physician who has incorporated his
medical practice. If a patient sues, and wins, they may be
able to attach assets of the physician’s corporation, but
personal assets (home, investments, vehicles, real estate,
etc.) would be protected. TOP
Limited liability refers
to limiting the availability of assets to a creditor. In the
above scenario, the physician’s corporation may be liable, but
the home, retirement plans, investments, etc., may pass
outside the lawsuit. That’s what makes malpractice insurance
important to service corporations, such as doctors, lawyers,
accountants and financial planners.
If incorporation is for
the purpose of hiding assets or avoiding tax, it’s simply a
dumb and expensive idea. Both federal and state income tax
will be due on personal assets. You may be able to deduct
utilities and rent payments on business property, but only if
you actually own a business that’s paying utility bills and
rent. Personal assets may be protected with insurance or
other means, but fraudently calling them something they’re
not, is not one of the ways to protect them.
TOP
Whether you’re an
employee of a company or run your own business, if you own
your home, have substantial savings and/or brokerage accounts,
real estate and other assets, I strongly urge you to talk with
an estate planning attorney to see where “asset protection” is
needed. It might come in the form of insurance, title
changes, beneficiary changes, even the creation of a family
limited partnership, or specially designed trust.
I’m betting you’ll come
out a big winner by putting your money on professional help
instead of gambling it away on a hot tip from friends.
Develop a relationship with an estate planning attorney and/or
financial planner you can trust, who will help you determine
your specific tax and lifestyle needs and create an
appropriate asset protection plan for you.
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