Friday, December 16, 2005

Case Study #5 Eminent Domain

What would you think if you owned a profitable investment property for years, were counting on it for your retirement income, and one day the city it resided in sent you a notice that they were going to take it by exorcising eminent domain?

They felt they'd like to develop your land and the surrounding land as a city project! That's exactly what happened to a client of mine. To top it off, the money they offered was far below what she could sell the property for on the open market. She had to hire an attorney to negotiate a more reasonable price. This not only cost a lot of money, but during the 8 month battle, the tenant on her property left and the positive cash flow stopped. She was left with an empty building, a mortgage payment and a stack of growing debt.

It sure doesn't seem fair, but it was something totally out of her control. The challenge was to make the most of what she has left.

We were able to structure a Private Annuity Trust that will assure her a lifetime income (granted, a bit less than what she had planned on should she still own and operate the asset), enough cash out (with taxes due) to pay off the bills she is accruing while supporting her now vacant asset, and to give her a bit of a cushion and extra income for the first year.

Without researching her options, this great lady would have had to pay a huge lump sum of capital gains tax and recaptured depreciation and extra income tax. Her retirement asset would have been depleted to the point she would have to remain working well past her normal retirement age and possibly have to reduce her current lifestyle to retire at all.

We can't always control what life throws our way, but we can control how we deal with the hands we are dealt.

It is a privilege to be able to make someone's life just a little better than it was when you met them.

Happy Holidays and All the Best,
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com