Digital Dealer - April 2020 - 12

DEALER OPS & LEADERSHIP

Succession Planning

By
Hugh Roberts
Partner,
The Rawls Group

Estate Taxes - Still a
Problem for Succession

>

''I'M NOT READY TO GIVE MY
KIDS $23M!"

"When my father died, we could
have been in real trouble trying to
pay his estate taxes. We just got
lucky with favorable valuations and market
conditions, but I'm not going to put my
children in that position." This prominent
auto dealer understood that getting lucky is
not good planning.
With the lifetime exemption per person
currently in 2020 at $11.8M, a married
couple can pass a $23.6M estate tax-free
to their heirs. For most Americans, estate
taxes are therefore no longer a problem, but
that is not true of car dealers, with the value
of dealerships having escalated considerably. Unless you have a plan in place which
will allow your estate to be able to pay your

A structured
plan to help
you remain
in control of
your assets
The following planning
technique can help you to
utilize your lifetime exemption
without having to transfer
assets before you are willing
to do so.
Spousal Lifetime Access
Trust - SLAT is a planning
vehicle that allows you to
minimize your estate taxes
while maintaining access
to your assets during your
lifetime, for those dealers who
are married.

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estate taxes, your dealership succession
plan could be in danger! Dealers need to be
concerned, since the estate tax exemption
is scheduled to revert to 2017 levels $5.4M per person, unless Congress acts to
extend the law before the end of 2025. This
reduction in the exemption would result in
most dealers being subject to paying estate
taxes.
I've never met a dealer who trusted
Congress to solve his problems! So, what
can you do now to minimize your estate
taxes? Today is truly a 'Use it or lose it'
time. Those who utilize their lifetime
exemption to transfer assets to their loved
ones will get the benefit of the highest
exemption ever - $11.8M x 2 (husband
and wife) = $23.6M. Those who wait, risk
cutting their exemption by more than

A SLAT is set up for each
spouse and while the trusts
are essentially the same, a
few provisions are included
to make the trusts sufficiently
different to qualify. A SLAT
is an irrevocable trust.
Assuming you had not
used any of your lifetime
exemption, each spouse
could transfer up to $11.8M
of assets into a SLAT for the
benefit of the other spouse.
As a result, $23.6M would
be transferred out of your
taxable estates, plus all the
appreciation on those assets
over the balance of your
lifetimes. You are the primary
beneficiaries of these assets,
with your children as the
secondary beneficiaries. If you
have made your gift transfer
before the law changes you
will be grandfathered under
current law.

half and having to pay millions more in
estate taxes! That's a succession planning
nightmare!
"I get it Hugh, but I'm not ready to give
my kids $23M dollars!" exclaimed one of my
dealer clients. He did not want to pay more
taxes than he had to, but he did not want to
risk his financial future by transferring too
much to his kids. Another dealer expressed
that he was afraid of the impact this would
have on his children, taking away their
incentive to work and fostering a sentiment
of entitlement. My partners and I at The
Rawls Group understand and agree with
both of those concerns. But with a properly
structured plan, there is a way to have your
cake and eat it too!
To share feedback or submit questions/topic
suggestions, email magazine@digitaldealer.com

"So, what is the downside?"
asked my client. At your death
or that of your spouse, the
surviving spouse will not have
access to the assets owned by
the deceased spouse's SLAT,
as your children will now be
the beneficiaries of the SLAT.
Therefore, the first question
is determining whether the
surviving spouse will have
sufficient assets available
either in their SLAT or owned
otherwise to maintain his/her
lifestyle.
"What about control?"
Control of the assets should
not be a problem as it can
be addressed many ways
to keep voting control in
the dealer's hands or that
of the spouse, if desired.
Determining when you want
your children to have access
to the SLAT assets is a part of
the design of the trust.

As with all estate planning,
you must work with qualified
tax advisors who can tailor
the plan to meet your
planning situation. If you
plan to transfer dealership
stock to a SLAT, you must
first secure written approval
from your manufacturer or
risk violating your sales and
service agreement.
"Let me see if I've got this
straight," said my client. "My
spouse and I have access to
the trust assets during our
lifetimes, we can structure
this plan so we remain in
control of the assets, our
children will receive the
assets, but not before we
want them to, plus we save
millions in estate taxes! Our
family and business succession plan are the winners
and the IRS is the loser - I
like it!"

April 2020
http://www.digitaldealer.com
Digital Dealer - April 2020

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