For dealers who are not yet sure what their succession plan will entail, or for those who need to set up their plan while maintaining some fluidity in their assets, there are financial tools available.
“One of the key tools in the arsenal is family trusts,” said Jason Safar, a tax partner at professional-services provider Pricewaterhouse Coopers (PwC), with experience in dealership succession planning. “What it allows me to do is to hold assets for a period of time until I figure out where I want to direct them.
“If the dealership’s worth $5 million, I exchange my common shares worth $5 million for fixed-value preference shares worth $5 million, and then I create this trust that subscribes for the future growth shares in that company. Any increase in value in that dealership beyond my $5-million freeze value now accrues to the benefit of this trust.
“What this does is it gives me the flexibility to, sometime in the future, determine where should those shares go. Should they go to child one, child two, 50/50 to each kid? Am I going to take them all back myself because things haven’t worked out with my children, or they don’t want anything to do with the business, or I need the money because business didn’t work out as well as I hoped?
Another available tool in such a structure is a holding company.