Is there anything your father should have done, that he didn't, regarding his estate planning."
"Yes," says the son.
The question was posed by the father's original dealership partner (now in his 80's) to the son years after the father's death.
The son, a successful auto dealer, was very emphatic in his response.
"Dad was unwilling to do anything because he thought he would be losing control. We were lucky - the timing of his death was during good market conditions when our dealership products were hot and the real estate market allowed us to sell assets needed to pay the estate taxes.
"We could have lost everything!"
You don't want your family relying on luck to pay your estate taxes? It runs the risk of your lifetime's work being destroyed.
What can you do? Let's examine some techniques that I have seen often missed by auto dealers in their planning with their advisors.
"How can I more effectively utilize my will and revocable trust to save estate taxes?"
Does your exemption trust mandate that income must be paid out of this trust to your spouse?
Since most auto dealers have sufficient assets to provide for their spouse, by having this be a mandatory payout you are likely to be adding hundreds of thousands of dollars paid out unnecessarily in estate taxes.
Do you have a QTIP Trust and a third party trustee?
If so, and if the stock of your dealership is divided between your spouse and the QTIP Trust, it is possible under a recent private letter ruling to have your stock valued utilizing minority discounts. The estate taxes saved for many dealers could be in the millions.
Should some estate taxes be paid at the first parent's death in order to get the benefit of lower estate tax brackets and to prevent the escalation of estate taxes at the second parent's death?
Most auto dealers have estates large enough to consider distributing some assets to their children outright or in trust while still having more than enough assets to provide for their spouse. Yet most planners ignore this fact with the result that the estate taxes will increase significantly.
Are your life insurance policies taxable in your estate or your spouse's estate?
All too often I encounter auto dealers who have neglected to utilize irrevocable life insurance trusts and as a result the IRS will get 55% of your life insurance.
You say, "I'm willing to consider ideas to reduce my estate taxes but I don't want to lose control - what is available?"
Let me touch on planning techniques we are using with auto dealers throughout the country.
* Sale or gift of stock in the dealership utilizing minority discounts.
By transferring a small percentage of the stock to your children you are getting the benefit of minority discounts for valuation purposes plus the growth on this stock is now out of your estate. Until you reduce your interest below 51% you have not lost control. Recapitalizing stock into voting and non-voting can increase your options.
* Family Limited Partnerships (FLP) and Limited Liability Companies (LLC)
These planning tools allow you to maintain 100% control while giving or selling equity to your children using significant discounts in valuing the assets transferred.
* Qualified Personal Residence Trusts (QPRT)
Would you consider this if you knew you could live in your home for the rest of your life, and be able to move to a different home if you chose to do so, while transferring your home to a trust which would significantly save your family estate taxes on your home?
Many auto dealers, upon examining this concept, have replied, "Yes."
* Grantor Retained Annuity Trusts (GRAT)
This idea allows you to receive income from real estate or S-corporation stock for the term of the trust and then transfer the asset to your children at significant estate tax savings.
"I'm interested in charities and being involved in charities is good for my business. How can I incorporate this into my estate planning?"
Charitable Remainder Trust, Charitable Lead Trusts and Family Charitable Foundations are very effective in accomplishing your goal.
Space will not permit any careful examination of these planning ideas and concepts. My purpose was to motivate you to seek expert professional advice that is crucial before any decisions should be made regarding your situation.
Dealership owners such address their estate and dealership succession planning with the same drive and energy they addressed so many other matters.
Sometimes the subject of estate planning is uncomfortable. But it's a matter of being in control of your finances.
Address these issues with competent advisors who regularly deal with these estate planning issues, so you will be the one making the decisions, not the IRS, the manufacturer or a judge.
Hugh B. Roberts, CFP is a partner in the Woodland Hills, CA-based de Vries-Roberts Group, specializing in succession and estate planning for family owned dealerships.