Americans spend a lot of time in the car. In 2019, the AAA Foundation for Traffic Safety determined that Americans drive an average of 11,498 miles each year, the equivalent of two roundtrip drives from San Francisco to Washington, DC. It makes sense, then, that vehicles are an important part of many estate plans and often need to be administered as part of many deceased persons’ estates. In both cases, there are a variety of techniques that may be employed depending on the facts. In this article, I’ll briefly explore some estate planning and estate administration concepts as they apply to vehicles. If you’d like to know more, please feel free to contact me to schedule a free consultation.
ESTATE PLANNING STRATEGIES (DURING LIFE)
Joint Ownership with Right of Survivorship
Vehicles, like many other types of assets, can be owned by multiple people jointly with right of survivorship (for more on this concept, see this article on my blog). This means that when one owner of the vehicle dies, his/her interest in the vehicle passes to the remaining owner(s) without having to go through probate. In the realm of vehicles, it is common to see married couples co-own a vehicle as joint tenants with right of survivorship so that when one spouse dies, the other can easily continue on as the sole owner of the vehicle. Newly purchased vehicles can be titled this way initially, and vehicles already owned by one person can be retitled to include another person jointly with right of survivorship.
Before deciding to own a vehicle jointly with right of survivorship, people should consider several things, including:
It is not enough to title a vehicle in the names of multiple people. If a vehicle’s title says “John Smith and Jane Smith,” then the two do not have a right of survivorship – they have a tenancy in common and the first one to die will have their one-half interest in the vehicle go through probate. To include the right of survivorship, the title must say “John Smith and Jane Smith – JTWROS” or something which similarly indicates the desire to have a joint tenancy with right of survivorship.
For married couples, joint tenancy with right of survivorship is helpful at the first death, but not at the second death. The right of survivorship may keep the vehicle out of probate when the first spouse dies, but after that, it is solely the property of the surviving spouse. To avoid probate at the second death, further action of some kind will need to be taken.
Joint ownership may mean double the liability exposure. Co-owning a vehicle opens the door to Owner 1 causing an accident and the separate assets of Owner 2 possibly being at risk as a result.
Getting a new car involves paying several fees at the DMV, and many of those fees apply when retitling a car from “Owner 1” to “Owner 1 and Owner 2 – JTWROS.” Generally, transferring a car title requires payment of certificate of title fees, new license plate fees, and the highway use tax. When adding a spouse as a joint owner on a vehicle, only the certificate of title fee should apply.
Transferring a Vehicle into a Revocable Trust During Life
Revocable trusts are powerful estate planning tools. Signing the trust instrument establishes a new entity that can take title to all types of assets, including vehicles, causing them to avoid probate. While it may seem obvious that anyone funding a revocable trust with their assets should put their vehicle in trust, too, this is sometimes easier said than done. Many planners even encourage clients to leave the vehicles outside of the trust to be handled during the estate administration process, viewing this as less burdensome than trying to put a vehicle into trust during life. This is due to the double whammy that is the DMV and the auto insurance industry.
As stated above, when a vehicle is retitled, the DMV generally charges certificate of title fees, new license plate fees, and highway use taxes. The certificate of title fee will be due upon retitling a vehicle into a revocable trust. A new license plate is typically not required, meaning no new license plate fee. And while a transfer of a vehicle into a revocable trust should not result in highway use taxes thanks to an exception in the law, it is not unheard of for the DMV to misapply the rules and charge the tax in error when retitling a vehicle into a revocable trust. When this happens, the tax can be refunded, but forms must be filled out and submitted to the NC Department of Transportation before any refund will be issued. As another anecdotal bit of caution, I recently heard via an estate planning listserv of a vehicle owner being denied a handicap license plate after putting a vehicle into trust because the trust (which was the official owner of the vehicle per the title) cannot be handicapped. While this may be an isolated incident, it is representative of the kinds of headaches that sometimes arise when trying to retitle a vehicle into a trust.
Separate from the DMV issue is the insurance issue. While different insurers will treat vehicles in trust differently, some may flat out refuse to insure a vehicle that is held in a trust. Others may insure the vehicle but increase the cost of the insurance going forward. When this happens, it is usually because the insurer views the vehicle as being owned by a non-human, resulting in them charging their business vehicle insurance rates. In all cases where the vehicle will remain insured after it is placed in trust, the insurance company should be directed to add the trust as an additional insured under the policy, and vehicle owners should work with their insurance company to ensure that the change in ownership will not create coverage and/or claim-payment issues in the event of an accident.
One additional thing to note: it can be difficult to put a vehicle in trust if it is subject to a loan. The loan agreement between owner and lender may restrict transfers of title during the life of the loan. In these cases, some lenders may be willing to permit the transfer into a revocable trust, but this permission should be sought ahead of time, not taken for granted.
ESTATE ADMINISTRATION STRATEGIES (POST-DEATH)
Spousal Year’s Allowance and Small Estate Administration
If the techniques above have not been utilized to keep a vehicle out of probate, it may still be possible to make quick work of vehicles that become part of a deceased person’s probate estate. The Spousal Year’s Allowance and Small Estate Administration are two estate administration techniques that make it possible to administer relatively low-value estates without the hassle of a full-blown estate administration, and they have historically been effective tools for administering estates that consist of vehicles and little else. Both techniques are still widely used for this purpose today, though the rising values of new vehicles may limit their applicability to estates consisting of vehicles that are several years old. For more on the Spousal Year’s Allowance, see this article on my blog, and for more on Small Estate Administration, see this one.
DMV Form MVR-317 (N.C.G.S. § 20-77(b))
State law provides a technique that applies to estates consisting only of vehicles and which do not justify the expense of administration. If these and other criteria are met, the Clerk of Court will sign off on an affidavit which has been signed by all of the heirs of the deceased owner of the vehicle and which names the person to whom the vehicle should be assigned.
Vehicles can be a surprisingly frustrating part of estate planning and administration, but with the right tools and knowhow, they can be planned around and administered just like any other asset. If you are interested in discussing an estate plan that properly accounts for all of your various belongings, I invite you to call or email The Law Office of Ryan A. Layton, PLLC to schedule a free consultation.
The information contained in this blog post is intended only as general legal information and should not be construed as formal legal advice on any matter, nor should its presentation be construed as intent on the part of The Law Office of Ryan A. Layton, PLLC to form an attorney-client relationship with any user of this website. For more information, please see this disclaimer.