What happens to a vehicle when the owner dies? This is something that might worry the family especially if it’s a refinanced car. How is it paid off and how is the title transferred? Read to know the entire process.
What happens to a vehicle when the owner dies?
Understanding the estate
When a person dies, their debts and assets are all added together to make up their estate. It is the total value of everything they owned at the time of their death. This includes checking, savings, and investment accounts, as well as land or businesses they had control over. The available assets will be used to pay off the rest of the debts, including any car loans, if there are enough funds to do so.
If the person who died had a plan for their estate and left a will or a trust, those papers will name an executor. The executor is the person in charge of settling the estate and giving the money to the people who are supposed to get it. But if a person dies without a will, a probate court will choose an administrator. This is usually the person’s surviving spouse or a close relative.
Credit insurance can be helpful when one family member brings in most of the money but both spouses sign a loan together. If the person who died had credit life insurance on an auto loan, the insurance company is responsible for paying off all or part of the loan balance, depending on the agreement.
Co-signers and debt
Co-signing is the process by which two or more people get a loan together. This comes in handy when you have a bad credit history. For example, if the deceased did not buy credit insurance and a living relative co-signed on the car loan, the co-signer is responsible for paying any remaining balance that is not covered by the estate. This is valid even if the co-signer doesn’t use the car.
In fact, it applies to any loan co-signed by a person who is still alive. If the co-signer doesn’t keep up with the payments, the account could go to collections, the car could be taken away, and the co-signer’s wages could be taken from them, depending on the laws in their state.
Surviving spouse rights
In most states, if someone buys a car or gets an auto loan, their estate or any co-signers who are still alive will have to pay off the rest of the auto loan after they die. But surviving spouses, relatives, and other beneficiaries will not have to pay any debts if they are not co-signers on the note. There are, however, situations where, depending on state law, the surviving spouse may have to pay some or all of the remaining debt.
Community property states
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and Puerto Rico are known as “community property states.” In a state with community property, any property or assets bought by one spouse during the marriage and any loans taken out to belong to both spouses and are their responsibility.
In a community property state, it doesn’t matter if only one person’s name is on the property title or loan. Income is also considered to be part of the joint property. But inheritances and gifts will stay the sole property of the person who got them. Rules about community property do not apply to people who are still alive and who are not spouses.
Unsecured vs. Secured car loans
A secured loan is one that is backed by something. That’s the car in this case. If payments on a secured car loan stop for any reason, like if the person who signed the agreement dies, the lender can take the car and sell it to pay off the rest of the loan. This can be avoided if the estate sells the car, but this may need probate court approval because both the car and the loan are part of the legal estate of the person who died.
On the other hand, there is no security for an unsecured loan. Most car loans are secured loans, but people with good credit may choose to get an unsecured loan instead. If the person dies, the car loan is the same as any other unsecured debt, such as a credit card or personal loan. It will be up to the estate and any co-signers to make sure the lender is happy.
How to transfer ownership of a car after death
Family and other beneficiaries of a person’s estate may keep the car, sell or donate it to a friend, family member, or charity, or sell it as a used car to an unrelated buyer. In each situation, the car’s ownership must be transferable. Depending on:
If the car was jointly-owned: If the car was owned by the deceased and another person, the remaining owner must change the title.
When the deceased car owner was the car’s sole owner: If the deceased was the only owner, the title must be updated to reflect the new owner.
If the car is part of a Probated estate: The title cannot be transferred until probate is complete. During this process, an Executor of the Estate will be responsible for transferring the title with the proper documentation.
If the Estate is not in Probate: If the estate is not in probate, meaning there was a Will or other estate planning actions completed before death, transferring the title will be quicker and easier than waiting for probate to end.
What if the car insurance policy holder dies?
Auto insurance policies differ; therefore, it’s crucial to know the company’s requirements. If the insurance company hasn’t been notified, ask about the next steps. For example, survivors or estate executors may inherit a driver’s auto coverage.
Ensure the policy mentions the covered driver. As the policyholder changes, the premium and reductions may change. Contact the insurance company to cancel the deceased car owner’s policy. To prevent fraud, they may ask for a death certificate and proof that you’re the executor.
What happens to a financed vehicle when the owner dies?
Car loans are often short-term. And it’s often six years. The documentation has a death clause for the same reason. The death clause describes what happens to a financed car when the borrower dies. So, what happens to a vehicle when the owner dies is that the loan won’t be forgiven.
How does probate affect a financed car?
The lender’s death clause explains repayment and ownership choices. Probate may determine who pays for a financed car after the owner dies. Probate settles an estate’s financial difficulties. Creditors and beneficiaries will be protected. Here are some basic state-by-state rules:
Assets and liabilities are combined
When a person dies, their assets and liabilities pass to their “estate.” Home, investments, a car, and other valuables are examples. Or it could be a car, a little savings account, and other items. An estate doesn’t require wealth. It’s what you own and owe.
The court-supervised probate process usually applies only to the deceased’s solely held assets. If there’s a co-signer or co-borrower, payments are their obligation. If only the deceased were on the loan, the car would be a probate asset.
Paying debts and distributing assets
The probate court appoints an executor or administrator to handle the estate’s obligations and assets. The executor or administrator may use estate funds to pay debts, including automobile payments, until the estate is finalized.
The car won’t necessarily go to an heir after probate, though. The executor may need to sell some estate assets to pay off the decedent’s debts (credit cards, bank loans, etc). This may entail selling the car if it’s worth more than the loan balance.
If the estate has enough money after paying other debts, it may be able to pay off the car loan. If so, the beneficiary may obtain the car without making any payments. Title transfer isn’t possible until probate is over.
If the car is still available but the estate can’t pay it off, a friend or family member willing to settle the loan debt may be the car’s legal heir. If no one wants the car, the estate may let the lender reclaim it. The lender would sell the car to recoup its loss and give the estate any leftover money.
Repossession of a vehicle car after death
The lender might reclaim the car and apply the proceeds to the loan. If the sale doesn’t cover the balance, the lender may pursue payment from a co-borrower, co-signer, or surviving spouse in a community property state.
The lender can’t force the surviving spouse or any heirs to pay off the remaining debt, but it can make a claim against the estate in probate court.
You don’t need to wait for the lender to insist. If no one wants to take responsibility for the car by making payments or selling it, the family may request voluntary repossession.
How to sell the car of a deceased person
Joint ownership of the vehicle with the deceased means you can assume complete legal ownership quickly. Once you obtain the car title, you can sell it.
As an executor, selling the automobile should be easy. A transaction may need DMV documentation and fees. Sign the title as executor for the sale. Buyer transfers title.
Does the DMV know when someone dies?
Some states have a vital records agency that notifies the DMV of a driver’s death. In states without this warning, the survivor must cancel the license. Doing this quickly prevents identity theft.
The DMV requires a death certificate to cancel a driver’s license. Many states allow you to cancel by mail or in person. Consult the DMV for required forms and documents.
Documents required for title transfer
Prior to transferring the vehicle, it may be prudent to consult with a legal and Probate expert in your state. If the vehicle was not subject to probate, the joint owner or inheritor may transfer the title to the new owner. The technicalities of the transfer may vary slightly from state to state. Whether the vehicle was solely owned by the decedent, was owned jointly, or is part of a probated estate, the Executor will need the following documents:
- A probate court order allowing for vehicle transfer
- Current vehicle title
- Death certificate of the former owner
- Odometer disclosure statement
- Transfer fee
If someone other than the beneficiary is in possession of the automobile, an Affidavit to transfer the automobile without probate may be required. These affidavits are available online for the majority of states. After completing the Affidavit to transfer the car, additional transfer procedures must be completed.
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