Many of you are back from the 2022 National Automobile Dealers Association (NADA) Show in Las Vegas, recharged and ready to take your dealership operations to the next level this year.  It is essential to begin with asking yourselves the following questions:

  • Is your business set up to succeed beyond 2022, long after you’ve retired or passed away?
  • Are you prepared to keep as much of your hard-earned wealth as you can and pass it on to your spouse, children and grandchildren?
  • Are your loved ones and key managers ready to take the reins when the time is right for you?

A detailed succession plan will address these concerns in an orderly fashion while simultaneously taking advantage of historically high Federal estate tax exemption allowances and avoiding probate.  Executing a succession plan now may save your estate millions of dollars in taxes upon your death, as the value of your business (as well as your other assets) continues to grow while the value of your estate is locked in at current valuations for tax purposes. By way of example, a dealer with two dealerships and real estate valued at $10 million today can transfer those assets of their estate now to take advantage of the $12.06 million threshold for Federal tax exemption.  With the right planning, if the dealerships and real estate grow in the next ten years to $20 million in value, the dealer’s estate can avoid estate taxes and capital gains taxes at their death on that entire $20 million amount.

Avoiding probate on your assets at death is advantageous for several reasons.  Complex cases can often take three to five years to resolve in Surrogate’s court, locking up those assets during that entire period without the ability to sell or take distributions on them.  Additionally, the value of your estate becomes public record in Surrogate’s court, adding more stress to an already difficult situation for your family.  By taking these assets out of your estate, your family can avoid much of the difficulties caused by probating your estate.

With the right succession plan, composed of various family LLC’s and revocable/irrevocable trusts, you can transfer the bulk of your ownership in a business out of your estate while retaining some level of income and control over operations.  In many instances, some assets are transferred outright while others are gradually transferred over time, based upon when you are ready to retire and hand over control of the business to other family members.

As an owner of a franchised enterprise, it is essential that any succession plan comply with OEM ownership requirements.  While there is typically no hard and fast rule on assets owned through trusts, manufacturers often require the dealer-principal to own a certain percentage of the equity in the company that operates a given dealership.  It is essential to keep OEMs engaged as well in preparing family members that will succeed you as dealer-principal.  Those successors must pass the same requirements that new dealers must meet regarding management experience.  This means having the successor act as a general manager or executive manager for one or more dealerships that you own for several years before they succeed you as dealer-principal.  Additionally, it is critical that your dealerships continue to meet OEM sales and customer service metrics, as failing to meet these metrics can often become an impediment to getting an OEM to approve the successor dealer-principal.

Every dealer’s situation is unique, and these issues are the tip of the iceberg when it comes to considering all the challenges that you may personally face.  When you are ready to face these challenges, we look forward to helping you chart a successful course for you and the next generation of your family.

If you have any questions or concerns, please contact Kevin E. Timson, Esq. at 631-777-2401 ext. 32 or ket@selawny.com.