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Family Business

The Situation
The founder of a family-owned business dies and leaves the business to his three children and a surviving spouse. Two of his children work in the business. In 1965, the business purchased its current location and recent market activity has significantly increased the value of the property. The location of the building is now irrelevant to the business. As the building owner, the business does not pay rent and therefore is not maximizing the property's full financial potential. Market conditions and industry factors make it desirable for the business to relocate, however as a C-Corporation, the business would pay a significant tax on the sale of the fully-depreciated property.

The Problem
There are legal, tax, business and real estate issues all interwoven within this situation. Furthermore, there are divergent financial objectives among the surviving spouse and three siblings.

The Solution
Several overarching issues will impact the course of action the family takes regarding the business and its real estate asset.

  • What are the current and long-term property needs of the business and how are they best satisfied in the current marketplace?
  • Can the business afford the cost to rent or own a new building?
  • What is the highest and best use of the property? Is there a current market for it?
  • What is the property worth?
  • How is the ownership interest in the business shared amongst the surviving family members?
  • What are the financial objectives of the surviving family members with regard to the business and the property?
  • What legal and estate issues need to be considered?
  • What are the realistic strategies that align with family objectives and mitigate tax consequences?

The Results
PREF works directly with the family alongside the family's other advisors to determine the best solution for its real estate assets. PREF goes to work on the following initiatives:

  • Assess the real estate needs of the business.
  • Gather market information for potential new sites and the existing site.
  • Assess the market information and develop an optimal real estate strategy.
  • Work with the family's accountant, estate attorney and financial advisor to determine how to integrate the real estate strategy into the family members' overall estate plan.
  • Implement the final approved strategy.
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