Factors such as the aging demographic of dealership owners and impending changes in tax laws put the automotive retail industry on the brink of significant transitions. With the average age of a dealer being around 72 years old, the next 5 to 10 years will see a wave of succession planning and ownership transitions.
In this month’s episode of Up to Speed, Mike Mader, Principal with Baker Tilly’s dealership advisory service team, explores the critical aspects of dealership succession planning and estate management with Jeff Bannon, Partner at Rawls Group. They highlight strategies to maximize lifetime exemption amounts for estate taxes, adapt succession planning during organizational changes and ensure board alignment.
The urgency of succession planning
The dealership space is poised for a substantial transfer of assets, with an estimated $7 trillion expected to change hands over the next decade. This massive shift underscores the importance of strategic succession planning. Currently, the lifetime exemption amount for estate taxes stands at approximately $13.9 million per person, or nearly $28 million per couple. However, this exemption is set to expire at the end of 2025, potentially reducing to around $7 million per individual. This significant reduction creates a narrow window for dealers to transfer assets without incurring substantial estate taxes.
Strategic asset transfers
Dealers must evaluate their exposure to estate taxes and identify which assets to transfer. The goal is to gift assets that are likely to appreciate significantly over the next decade, thereby removing taxable growth from the estate. Typically, the most effective assets to transfer are those that have not yet reached peak performance, such as newly acquired dealerships. By transferring these assets, dealers can minimize estate taxes and ensure that future growth occurs outside the taxable estate.
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