Pub. 1 2012 Issue 1

Chairman’s Letter 14 San Diego Dealer T hanks to federal estate tax rates introduced in 2010, the remainder of 2012 presents a crucial window for automotive dealers to evalu- ate or create, and execute on your estate plan, take advantage of the new rates, and ultimately safeguardmore of your hard-earnedwealth. Some of the new tax rates will be in effect only through 2012, making this a unique but short-lived window of opportunity, especially when considering the lower asset valuations so prevalent in today’s economy. When you transfer minority or fractional interests in a dealership or the dealership real estate, the applicable valuation discounts can produce dramatic transfer tax savings. The New Estate Tax Landscape The federal tax rate is currently capped at 35 percent for gifts or bequests in excess of $5 million. After 2012 it’s scheduled to increase to 55 percent and the exemption to decrease to $1 million. The lifetime gift exemption has been increased tomatch the exemption otherwise available at death. Married couples that haven’t yet used their lifetime exemption could gift up to $10 million ($5 million each) without paying gift taxes. After 2012 the same $10 million transferred at death could trigger an $8 million taxable transfer—$10 millionminus a couple’s combined $2 million exemption—with a federal tax liability as high as $4.4 million (55 percent of $8 million). Your estate documentsmay require at least two kinds of trusts—a credit trust, which would include assets equal to your available federal exemp- tion, and a marital trust for the excess. A third kind of trust, a generation skipping trust, is also often incorporated into your estate planning and is used for asset protection planning for multiple generations. Should you risk waiting until 2013 to see if the rates and exemptions hold? First, one has to acknowledge that the potential tax savings of acting now are simply too big to ignore. Second, none of us gets to decide when death taxes actually become due. Accordingly, good planning shouldn’t rely on Congress to preserve both lower rates and higher exemptions beyond 2012. Where to Start Estate planning represents unfamiliar territory and complicated family situa- tions. Asuccessful outcome requires careful communicationamong spouses, family members, and others. Looking at your estate plans, ask yourself: How has my estate changed since the last time I reviewed my plan, and does it reflect my current wishes? Does my plan protect my assets and provide for my heirs the way I intend? What’s my future federal and state estate tax liability, and will my heirs be able to pay that amount within nine months of my death? Have I saved enough to retire comfortably? Does my plan assure a smooth transition of my business with minimal tax impact? Does my plan take advantage of all federal and state exemptions in a manner that protects assets and minimizes income and estate taxes? Protecting All Your Assets Do you have a succession plan in place for perhaps your largest asset— your dealership? A plan helps you answer important questions, such as: Who will run your dealership after you retire or in the event of your incapacitation or death? When will the time be right to transition your ownership interests to the next generation? How will you structure the transition of your ownership interests? As the owner, you need to ensure that your estate plans are closely aligned with your business succession plans so that these scenarios play out smoothly. Estate tax is due nine months after death and can be more than 50 percent of the value of your estate. This can severely impact your business, andmany families have been forced to sell their business assets—or even the entire dealership—to pay estate taxes. Holistic planning will help you and your heirs avoid such a sale, pro- tecting your wealth and ensuring the continuity of the business and the jobs of your employees—an imperative for transitioning your company to second, third, or following generations and for preserving both your business and personal legacies. Sid Tobiason has over 30 years of experience providing tax and succession guidance to closely held dealerships and their owners. He can be reached at (858) 627-1448 or sid.tobiason@mossadams.com . Estate Planning for Dealers Now or Never? by S i d Tob i ason, Dealer Serv i ces Group, Tax Partner, Moss Adams L LP