“My wife wants to be sure our children are treated fairly, but that’s easier said than done.”
Hardly a week goes by that I don’t hear this statement from a family business owner, particularly auto dealers, working through their estate plan. You’re trying to protect the business you built, ensure it stays in the family, and avoid setting off emotional landmines between your kids. It sounds straightforward. The reality is not.
So, what’s really at stake, and why does this dilemma create so much anxiety for so many dealer owners?
The Capital Demands of the Auto Business
As a dealer, you know it takes a significant amount of capital to operate. Between floorplan financing, manufacturer image upgrades, real estate costs, payroll, and inventory turnover, liquidity is always top of mind.
Being conservative in your business approach, you’ve worked hard to maintain access to capital. You’ve managed cash carefully, reduced debt, and acquired the real estate under your stores so you can leverage it if needed.
The Personal Side: You’re Also a Parent
Then there’s the human side of the equation.
You may relate to, “But I love all my children, and I don’t want any of them to think otherwise.”
Or “My sons will have plenty operating the business, but I want to be sure my daughters will be ok.”
These are very real concerns. My partners and I at The Rawls Group hear them from dealer clients every day.
The Dilemma: Active vs. Inactive Children
A common challenge for dealer families is having some children working in the store and others who are not involved. That dynamic forces a difficult question: how can you provide for all your children without placing financial strain on the business?
You ran the dealership with full access to your assets. Now your successors are expected to do the same with less.
“They Can Just Borrow Against the Real Estate…”
This mindset comes up often.
One client told me, “I started my business with nothing, so what’s the problem?”
Another said, “My sons can just borrow against the real estate.”
In that case, the dealer had two children working in the business and two who weren’t. The logic sounded simple, but the planning implications were anything but.
What Happens When the Will Says “Equal”?
Let’s take a step back. One of the most common things I see when reviewing Wills and Trusts is that assets are being divided equally between all children, regardless of their role in the business.
Why is that a problem?
One father insisted his children each receive equal shares of stock. Two were active in the business. One was not. I told him what would likely happen after he passed:
“You two are doing a great job running Dad’s business. So, when do I get my money?”
“You don’t.”
“I own one-third of the company. What do you mean I don’t get paid?”
“We don’t make any distributions because we need the money to run the business.”
“But you’re living a great life, so you must be getting a lot of money from the company.”
“That’s because we work here.”
“So, when do I get paid?”
“When we sell.”
“When are you selling?”
“We’re not.”
“Well, this is a lousy deal for me.”
“Yes, and by the way you owe estate taxes on your one-third ownership of the stock.”
Equal Is Not Fair
This kind of equal ownership structure puts your operator children in control of distributions. If your dealership is structured as an S-corp or LLC, they could choose not to issue distributions at all, even though your inactive child owes taxes on their ownership interest.
In short, it can get very messy. Family harmony becomes a thing of the past.
Because the truth is, equal is not fair, and fair is not equal.
Most successor children do not want to carry the burden of inactive siblings.
“I’m doing all the work and they’re getting paid for doing nothing.”
What is “Meaningful” to Each Child?
To preserve family relationships and business continuity, you have to think about inheritance from each child’s perspective. And in most cases, that means giving them assets that feel “meaningful,” which usually translates into income-producing.
Clients often ask us to put together spreadsheets showing what each child will receive. They want the numbers at the bottom to look equal.
One client wanted his daughter to receive the business and his other two children to inherit his ranch. On paper, the ranch was worth double what the dealership was. “Looks fair,” he said.
I asked, “So you’re okay with your children selling the ranch?”
“No,” he said. “That’s my ranch.”
“But it doesn’t produce much income,” I said. “They won’t be able to afford to keep it, and they’ll owe estate tax on it.”
Not what he intended.
Will the Plan Create Financial Strain?
Your children who have committed themselves to running the business have poured years of hard work into building your legacy.
Will your plan require them to buy out siblings at a value that puts financial strain on the store?
Have you addressed estate tax obligations or other liabilities?
Will they face escalating rent costs because the real estate was left to children not involved in the business?
What About the Children Not in the Business?
Will they receive assets that provide income and lifestyle security?
Inactive siblings often struggle to sympathize with the demands of running the dealership if they are not receiving anything that improves their day-to-day lives.
Wherever possible, separate the assets so active and inactive children are not tied together in a way that breeds resentment. This is easier said than done, especially since dealership stock and real estate often make up the majority of your net worth.
It’s Time to Deal with What You’ve Been Avoiding
By this point, you may be hoping for a clear formula. But the truth is, while stories like these provide guidance, every situation is unique.
What does your spouse want?
What do your children want?
Do they have the kind of relationships that allow for open, honest conversations?
Too often, they don’t. And unresolved emotions linger, ready to surface at the worst possible time.
One client told me many years ago, “You’re my friendly pain in the butt. If you weren’t friendly, I’d kick you out and if you weren’t a pain, I’d never get this done, because I really don’t want to deal with this.”
He couldn’t have defined what we do better.
A good succession planner helps you work through these issues now, so your family doesn’t have to fight through them later. Someone who will push you, ask the hard questions, and help you protect both your dealership and your family relationships.
Find that person. Your dealership’s future, and your family’s peace, depend on it.
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