One of the most confusing parts of estate planning is how to title your vehicle.
The Three Main Concerns We Try To Balance When Titling A Vehicle Are:
- Reducing probate exposure
- Minimizing unnecessary transfer fees and taxes
- Maximizing your asset protection if you cause injury or damage in a car accident
Below we’ve outlined a couple of different scenarios when it comes to titling your vehicle as part of your estate plan. No matter what scenario you fall under, it’s important to note a couple of things:
- If your automobile is subject to any sort of loan or lease agreement, then you cannot transfer the automobile to a trust. Once the loan is paid off, you can decide whether it makes sense to transfer the automobile to your trust or not.
- I’m married, should my spouse and I title our vehicles jointly to avoid probate?
The first thing to know is that just titling your vehicle jointly is not enough to keep the car out of probate. You have to be more specific. The car title needs to be “Joint Tenants with Rights of Survivorship - JTWROS”. This acronym is typically indicated next to the owner's name on the title.
The default at the DMV is to assume you do NOT want rights of survivorship. You have to ask for it, and since most people don’t know how to ask for it, the car title effectively says that you each own half of the vehicle.
There Are A Few Risks Of Using A Joint With Rights Of Survivorship Designation.
- Scenario 1: You cause a car accident and get sued by a third party that was injured in the accident. If both you and your spouse are owners of the vehicle that caused the accident, you both may be held responsible in the lawsuit, which could put more of your assets at risk.
- Scenario 2: You cause an accident and your spouse is a passenger in the car and is injured in the accident. Your spouse may not be able to file a claim with the auto insurance company for the injuries if they are a joint owner of the vehicle.
If asset protection is important to you, then rather than joint ownership, you may want to consider only having each of your vehicles titled in the name of the primary driver of that vehicle.
As part of the trust funding package that we provide to our clients, we include individual automobile trusts for each spouse. This allows you to keep the vehicles in separate names for asset protection purposes AND has the option to put the vehicles in a trust to bypass probate. These automobile trusts are simplified and upon your death, they “pour” the vehicles over to your main revocable living trust.
If you do decide to update the title on your vehicle, there will be some processing fees involved, usually around $52 or less. But beware! North Carolina also has what’s called a Highway Use Tax. This is the tax that you typically see applied when you purchase a vehicle and it can add up to a few hundred dollars.
North Carolina Law Does Allow For Certain Exemptions Of The Highway Use Tax:
- A transfer to remove a co-owner
- Gift to a spouse or child
- Transfer to the owner’s revocable living trust if the owner is the sole beneficiary.
We’ve designed the automobile trust to meet these requirements.
Please Note: The DMV doesn’t always apply for the exemptions properly, so if they try to charge you the Highway Use Tax, abbreviated to H-U-T on your invoice, do not proceed with the transfer. Once you pay the fee, you will not be able to get a refund.
My Spouse Died And The Car Was In Both Of Our Names. What Should I Do?
First, locate the title of your car. If you’re unable to locate the title, then contact the DMV to request a replacement copy. Then, review the car title and look at how your names are registered on the title.
Does it simply list your name and your spouse’s name? Or does it have some sort of designation at the end such as “Trustee” or the abbreviation “JTWROS” at the end?
If it says “Trustee” by your name, then this is an indication that the car is titled to a trust and the trustee of the trust is the individual who is authorized to handle the car by any instructions provided within the trust document.
If the title says “JTWROS” next to your name, this stands for “Joint Tenants with Rights of Survivorship”. If the title says JTWROS next to your name, then you should go directly to the DMV to begin the process of transferring the car into your name.
Bring to the DMV: the car title, an original death certificate, proof of insurance, and valid government ids such as an unexpired driver’s license or passport.
If there is no designation after your names, then effectively what the car title is stating is that legally you own half of the vehicle and your deceased spouse owned the other half of the vehicle. Your spouse’s half of the vehicle is now a part of his or her probate estate. Don’t panic about probate, we’ve got you covered!
If you are like most married couples we see, chances are that almost everything else you and your spouse owned was joint with rights of survivorship or your spouse likely had you named as the primary beneficiary on things like retirement accounts and life insurance policies. If the car is the only probate asset you’ve discovered so far, the process is relatively straightforward. Contact the estate's division of your county superior court and begin the process of claiming what’s called a “spousal allowance”.
Spousal Allowance Is A Fairly Straightforward Process And Allows A Surviving Spouse To Claim Up To The First $60,000 Of A Deceased Spouse’s Probate Estate.
The Clerk Of Court Will Provide You With The Form To Apply For The Spousal Allowance.
You’ll need to provide:
- An original death certificate
- The car title
- A report showing the estimated value for your spouse’s portion of the vehicle (if the car was titled jointly, then you only list half of the vehicle’s value because you're only reporting the value of your spouse’s half of the car)
Once the clerk approves the spousal allowance application, you’ll be able to take this to the dmv to initiate the transfer of the car fully into your name.
The potential risk of this approach, albeit a relatively small risk, is that if you and your spouse die in an accident, your car may end up subject to probate before passing to your children or other beneficiaries. If the car is the only probate asset, then the process should still be fairly straightforward, though it wouldn’t be as streamlined as the spousal allowance option.
I’m Unmarried, Should I Put My Car And Automobiles Into My Revocable Living Trust?
“Should I retitle my automobiles to my trust?” The short answer is, that it depends.
If your goal is to keep your vehicles out of probate, North Carolina law does not allow us to put a transfer on death designation on a vehicle. Meaning, that if you die with a vehicle in your name, it will become a probate asset.
If the value of all of your probate assets is less than $20,000, there may be a streamlined probate process available, but if the total value of the vehicles is more than $20,000, then full probate will be required which can create extra work and fees for your beneficiaries.
One Option Is To Transfer Your Vehicles To Your Revocable Living Trust.
Here are a couple of things to keep in mind:
- If you do decide to update the title on your vehicle, there will be some processing fees involved, but are usually around $52 or less, plus, the North Carolina’s Highway Use Tax. This is the tax typically applied when you purchase a vehicle and it can add up to a few hundred dollars.
- North Carolina law does allow for certain exemptions of the Highway Use Tax including a transfer to transfer to the owner’s revocable living trust if the owner is the sole beneficiary.
Now, depending on how your trust is drafted, you may not be the sole beneficiary of your living trust. This is why we offer our clients an automobile trust as part of their funding package. The automobile trust is a simplified trust that upon your death “pours” the vehicles over to your main revocable living trust.
We’ve designed the automobile trust to meet the Highway Use Tax exemptions, but the DMV doesn’t always apply for the exemptions properly so if they try to charge you the Highway Use Tax which, is usually abbreviated to H-U-T on your invoice, do not proceed with the transfer. Once you pay the fee, you will not be able to get a refund.
If you’re a client of our firm, don’t worry. Your funding kit includes an FAQ handout that goes over everything noted above, so you can review it again in more detail.
If you’re not a client of our firm and your prior lawyer didn’t help you with these issues, then perhaps it’s time for a second opinion. Give our office a call to discuss today, at 919-443-3035.
