Succession Planning and Family Generational Wealth Transfer

Succession planning is a critical consideration for anyone looking to transfer their wealth to future generations. However, it is also important to consider the broader implications of asset transfers, especially when it comes to creating equitable opportunities for your minority key managers. In a recent video, Jean Venant, Succession Planner with The Rawls Group, discussed some interesting data on succession planning and generational wealth transfer from a chart released by the Federal Reserve.

Growth in Asset Ownership Among Different Races

The chart indicates that white Americans owned $49 trillion of assets in the US in Q4 of 2020, while black Americans owned $2 trillion, Hispanics owned $1 trillion, and other race classes (including Asian Pacific Islanders) owned $2 trillion. Fast forward to Q4 of 2022, and the numbers show that white Americans own $128 trillion, black Americans own $8 trillion, Hispanics own $6 trillion, and others, including Asians and Pacific Islanders, own $16 trillion, with the overall value totaling out to $158 trillion of assets.

In terms of growth percentage, white Americans grew their assets by 190%, while black Americans grew by 300%, Hispanics grew by 500%, and other classes grew by a whopping 700%. This shows that some individuals have been able to grow their wealth much more aggressively than others. This is reflective of the hard work that has been successfully accomplished by many of you in your family and communities. However, a comprehensive and strategic succession plan can help minority car dealers grow and impact a movement towards a fair share of the bottom line.

Leveraging Succession Planning for Generational Wealth Transfer

The total growth percentage of 222% tells us that some of these individuals have possibly been strategizing their growth and their businesses much more aggressively than others. This brings us to the issue of succession planning and how we can leverage transferring generational wealth to your family. For most business owners, especially those in the auto space, the businesses they own are capital-intensive, high-risk, high-reward ventures. To transfer generational wealth throughout your community and labor market, business owners need to first look at how they can impact their community by creating opportunities that can change lives, most importantly, your key managers lives which naturally will apply pressure for your group to enter growth mode.

Many business owners are already doing a fantastic job implementing strategic succession strategies,  creating opportunities and acquiring more dealerships. By doing this, they have been able to impact not only their bottom line but also the lower and middle economic class, which is impacted by challenges in growing their wealth.

Diversification

Another critical consideration is diversification. In most cases, dealer owners will likely have opportunities to go out and acquire more service and retail points and have typically been averse to pouring their cash into securities and other long term investments. However, it is important to note that diversification is crucial for long-term success. While the current securities market might be volatile, it has historically been able to deliver at minimum 4-5% return over time. Moreover, diversification comes in different forms and will be paramount to your engagement and acceptance to begin building and stewarding your “family wealth” through the next generation of your lineal descendants.  Your committed engagement to leveraging unique trust structures such as but not limited to IDGIT, SLAT, GRAT, CRAT and Dynasty trust will provide you the opportunity to retain more of your earned legacy for the benefit of your family.

Tax Efficiency

Business owners need to consider tax-efficient and productive organizational structures. As an example, if a business owner is a C-Corp and does not plan on going public, an S-Corp election might be a more beneficial structure as it allows the owner to create equitable opportunities for key managers while having pass-through ability with profits flowing up to a holding or management company, single vs double taxation. In result, the owner provides an opportunity for key managers put skin in the game without risking ownership and maintain flexibility of your personal return on your investment.

Cash Management

Lastly, it is not uncommon to see dealers use their dealership as a bank. In many cases, we come across dealers who leave distributed and taxed income either in floorplan or their business checking accounts. A profound transition in your perspective regarding your “cash plan” will focus on the adoption of “treasury management” and a strategic banking plan that will accomplish your business and personal goals financially. Ultimately, this move will also likely reduce your liability in the event of an accident or loss in your business.

In conclusion, succession planning is critical for anyone looking to transfer their wealth to future generations and the building up our community. Minority business owners can impact their communities by creating opportunities, diversifying, and considering tax-efficient and productive organizational structures to leverage and impact their community and increase the returns on your investment. By doing so, you can ensure that your business continues to grow and provide for your family and community beyond your lifetime.

Data Source/reference: Federal Reserve

Estate planning is a complex endeavor, especially for owners of capital-intensive complex business’. Throw active and inactive family into the mix and trying to figure out what is fair, how to provide opportunities for the next generation without enabling them, and maintain family harmony.

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In complex family and business environments, it is imperative to lean on expert legal and tax advice who specialize in the same size business and estate as you.  We are not attorneys or CPAs but know experienced advisers if you are looking for sophisticated advisory services.

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