If you're part of a couple—married or not—it's often smart to hold title to your cars together, as "joint tenants with the right of survivorship." That way, when one owner dies, the other will own the vehicle, without probate court proceedings. The transfer is quick and easy.
Creating a Joint Tenancy
In some states (Oregon, for example), you don't have to add any magic words to the title document: If you own a car jointly with someone else, and one of you dies, the survivor automatically owns the car. In Kentucky, that's true only if the co-owners are husband and wife.
In most states, however, you must take some care to set up the ownership in a way that will let the survivor inherit the car without probate. Usually, the car's certificate of title must spell out that you own the car together "in joint tenancy with right of survivorship." When you apply for a title certificate for the car, your state's motor vehicles agency (or the seller) should be able to tell you what words to use to achieve the result you want. Texas includes on its certificates of title a "Rights of Survivorship Agreement Form" for husbands and wives to sign.
Adding a Co-Owner Just to Avoid Probate
Many single, older people are tempted to make someone—a grown son or daughter, perhaps—the joint owner of a car, solely for the purpose of avoiding probate. But in many instances, that's not a good idea. Keep in mind that you're giving away a half-interest in the car, which can have several undesirable consequences:
- A gift is permanent. If you change your mind, you can't get the half-interest back unless the other co-owner agrees.
- If the co-owner is on the losing end of a lawsuit or files for bankruptcy, a creditor could seize his or her interest in the car.
- If the half-interest is worth more than the amount of the annual federal gift tax exclusion (currently $13,000), you are required to file a federal gift tax return. No gift tax will actually be due, however, unless at your death you have given away or left such a large amount of property that you have exceeded the gift and estate tax threshold. (And given how quickly new cars plummet in value after they're driven off the dealer's lot, gift tax is probably a concern only if you're sharing a spanking new car.) Still, filing the return is a pain.
Transferring Ownership After One Owner Dies
After one owner dies, the surviving owner automatically owns the vehicle. But the new sole owner must still change the car title into his or her name alone. This process is sometimes called clearing title. Usually, it's quite easy; all that the state motor vehicles department requires is a written statement from the new owner (the state may provide a fill-in-the-blanks form) and proof of death (a death certificate). Some states issue a new certificate of title for free in these circumstances; others charge a small fee.