Dealers have experienced tremendous growth in their net worth in recent years. Dealerships’ balance sheets are strong and their net worth is sky rocketing. Goodwill/”blue sky” values are also at record levels for most franchises. Real property values have soared in recent years as well. Dealers must address estate planning again in an attempt to minimize “death taxes.”
A simple way to reduce your estate is to consider gifting existing reinsurance company stock. Many dealers depleted assets in their reinsurance companies a few years ago by taking distributions at the lower dividends tax rates. You will use less of your lifetime gift exemption because the assets were reduced significantly. Also, when gift valuations are performed, significant reserves are established for future claims reducing the company’s value.
Another option is to suspend premium payments to existing reinsurance companies and create a new company with children/grandchildren owners. The new entity will receive all premiums in the future and the value of the old company will reduce as claims are paid.
We have found that dealers are reluctant to gift dealership stock with the many complications that may result. They are more comfortable gifting reinsurance company assets. The use of trusts will allow a dealer to maintain a level of control over the management of the reinsurance company.
With dealership values spiking in recently, dealers should revisit their estate planning that was put on the back burner after the recession of 2008.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or 800-849-6022.
