By Joan B. Kaye, senior vice president and relationship manager, Key Private Bank
Financial advisors often say that estate planning is hardest when businesses are involved. While it’s true that some hurdles are universal to all business owners, it’s important to shine the headlights on challenges specific to auto dealers. Below are the four most common challenges Key Private Bank advisors report when working on estate plans:
- Non-Existent or Out-Of-Date Documents
Rule number one of estate planning is having a plan in place. It sounds glib, but the truth of the matter is too many dealership owners neglect to carve out the time to proactively put a plan in place, thinking there’s always tomorrow to worry about their estate. Sometimes procrastination occurs because dealership owners are not sure how to approach estate planning in a fair and equitable manner. At Key Private Bank, during the document creation process, we believe the best way to proceed with developing a robust estate plan is to thoughtfully consider the lead family member’s or members’ goals and wishes, followed by the character of the inheritors.
Once a plan is in place, advisors say the most avoidable error in estate planning is failing to keep documents, titling of assets and accounts, and beneficiaries up to date. Part of this process includes taking inventory of all financial assets and digital records on an annual basis and making sure the information is accurate and accessible.
- Smooth Transfer of Business Ownership & Tangible Property
When most people think about tangible property, they are focused on houses, collectibles and the like. Thinking through what happens to those tangible items is complex enough. However, when you own a car dealership, the complexity escalates with the transition of business ownership. Too often, car dealership owners do not have a succession plan in place that fully encompasses tangible property or accounts for the risk that is inherent to the business. When navigating the succession planning process, make sure to connect with your trusted financial advisor to discuss the appropriate products and services available. For example, an advisor can help to establish trusts for asset protection, mitigate tax burden and avoid gross taxable estate issues down the line, as well as consider charitable giving during life and upon death.
- Misunderstanding the Concept of “Fair” Versus “Equal”
Most business owners grapple with addressing the issue between determining what’s “equal” and what’s “fair” when multiple inheritors are involved. However, determining the distribution of assets very quickly becomes complicated when a non-liquid business is involved, like an auto dealership. For example, let’s say an auto dealer in a multiple marriage situation is considering ways to equalize an estate among a variety of heirs. When there is a diverse asset base, the tendency may be to divide everything equally. Yet, in business succession situations, asset equalization is not always the right solution. While some inheritors may have careers directly tied to the dealership, others may not, or the dealer may not want certain inheritors to access the assets. Some may be able to inherit outright, where others may need gates to access their inheritance due to other factors (e.g., poor decision making with spending).
- Lack of Communication with Family Members
An estate plan should bring a dealer’s wishes to life, while taking into consideration family dynamics and asset protection needs, which is why it is extremely important to gather family members to have an estate planning discussion. Holding a family discussion creates the opportunity for auto dealers to communicate not just estate planning wishes, but also the kind of legacy they want to pass on to future generations.
A trusted financial advisor can guide owners through the most appropriate way to convene a family without creating rifts and arguments and can help enhance visibility on wealth planning across the entire family unit. In addition to the practical benefits of a family meeting, these conversations can serve as a great opportunity for parents to begin teaching their children how to be good stewards of wealth, including how to work with a corporate fiduciary, when to ask for funds, how to ask for funds, and the basics of investing.
Auto dealership owners have invested blood, sweat, and tears into building and growing their business. Having a comprehensive estate plan in place can help preserve that investment into the future. For more information,
This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice. KeyBank is Member FDIC. KeyCorp. © 2018. CFMA #180720-502180
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Joan B. Kaye is senior vice president and relationship manager with Key Private Bank. She can be reached at Joan_B_Kaye@KeyBank.com or 1-516-660-9851.