Thursday, May 24, 2007

Case Study - Sale of LLC

Sometimes one does not have control over when their asset is sold. This was the case of a 54 year old woman recently.

As part of a divorce settlement she was awarded a percentage in her former husband’s LLC which held a shopping complex. She was a minority shareholder, so had no decision making clout.

For years her only income was her share of the rent which was about 45K/year. She only worked sporadically part time so this was what paid the bills. Then one day she was told the property had sold and would close within the week.

Her share would amount to about 1.2 million dollars after costs of sale, and her tax bill would be approximately 360K. That is almost 1/3 of her asset. Of course she went into panic mode and didn’t have a lot of time.

We were able to put together a plan where she kept out 200K (and had a big tax deduction to minimize the taxes due at sale). This was money to keep and reinvest. The other 1M would go through the Installment Sale through a Foundation.

This triggered a large tax deduction ($1,429,891.40) she could enjoy for the first 6 years, partial forgiveness of capital gains tax ($24,548.47) and recaptured depreciation and a guaranteed income stream for 40 years of $55,195.68 annually which would become increasingly less taxable each year.

This guaranteed her income until age 94, gave her money to invest outside of the sale for additional future income, and reduced her taxable income by 30% over the next 6 years.

Even though the majority share holders went their separate ways and did their own thing, it did not mean this minority shareholder was obligated to follow suit.

If you find yourself or someone you know in a similar situation, give me a call and let’s explore your options.

Paula Straub

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