I
have been a co-trustee of some trusts that were created by two very successful
real estate businessmen. They were both
attorneys, admitted to the New York State bar before I was born. They made their fortunes as partners in real
estate, originally buying slum properties in Troy, New York, but later, years
before I became their general counsel, they shed that part of their business
and invested in multifamily apartment projects, originally in the capital
district of New York, but eventually acquiring properties in several
states. When they started their business,
there were certain tax and liability advantages to put the title to the properties
in small “C” corporations, which eventually numbered more than fifty. As a result of tax law changes, and because
it became difficult to manage the number of corporations, I consolidated the
corporations into two holding companies.
As
property values increased, the partners were able to refinance the properties
multiple times. Each time they refinanced,
they were able to pay off the existing mortgages and retain very substantial
funds. Refinance proceeds are not
taxable, so these corporations grew in value as the refinance proceeds enabled
them to expand their holdings, and continually increase the value of the holding
companies. But there was a downside to
the plan: Upon the death of the partners, there were no family members who could continue the operations of the holding
companies, which were owned by the partners’ trusts. Selling the properties, either individually
or in bulk created a huge financial problem.
The proceeds of such a sale would first be used to pay off existing
mortgages, but there was a huge capital gains tax bill that would come into effect
when the properties were sold, since the refinance proceeds that were retained
at the time of refinancing tax-free lowered the “cost basis” of the properties,
and the gain, and thus the tax, was more than could be realized by the
sale.
Fortunately,
our New York City counsel came up with a solution. They knew of a wealthy businessman, a CPA,
who had figured out a method of avoiding the capital gains tax on a sale and
purchased the holding companies from the trusts for a sum which netted the trusts' cash in the mid-eight-figures.
Suddenly, the trusts were flush with cash to invest for the benefit of
the partners’ families, the ultimate beneficiaries.
Trustees
must be prudent in making the investment of trust funds. This normally involves dividing funds between
fixed-income investments (bonds or bond funds) and equities (stocks or managed
stock funds). It is also prudent to
spread the investments among various brokers to get the benefit of a variety of
investment options and advisory opinions.
One
of the brokers with whom the partners and the trusts had previously used in
Albany suggested that we go to the New York City office to speak with the
company’s team of investment specialists.
That office was located in the World Trade Center. We arranged for a morning meeting on
September 11, 2001, a date that the man who had purchased the holding companies
was going to host a celebratory dinner for us.
September
11 was a Tuesday. My original plan was
to take the 7:00 a.m. Amtrak from Rensselaer to Manhattan, meet up with the
other trustees and the broker’s Albany representative and go together to the
Trade Center for the mid-morning meeting.
However, after the arrangements had been made, I remembered that
September 11 was Primary Day in New York State, and I wanted to vote in the
primary election because of its potential effect on the forthcoming local
election. According, I contacted the
other parties and pushed the meeting back to early afternoon so that I could
take a later train to New York City.
After
returning from voting in the primary election, I returned home to gather my
materials for the meeting. As I was
preparing to leave our home, my wife called me to look at the television, which
was reporting the first airplane that hit the north tower of the World Trade
Center. At that time, it was thought to
have been an accident that would have an effect on a few floors of one of the
tower buildings. I did not immediately
believe that it would necessarily cause my meeting, in Building 7 of the World
Trade Center, to be affected, and I still planned to go to New York City, if
only for the planned dinner party.
Then
the second airplane hit the south tower, and I realized that the meeting or the
dinner would never be held, and like millions of others around the world, I
spent the next hours and days watching the horrible destruction the terrorists
had brought as they struck the Pentagon in Washington, and the airplane brought
down by passengers in Pennsylvania to prevent it's hitting an intended target in
Washington, D.C.
