Do Your Heirs Inherit Your Car Loan or Lease?
Years ago, people typically bought cars and drove them until they were no longer roadworthy (the cars, not the people). These days, it's much more common to replace your vehicle every few years, whether by purchasing or leasing a new vehicle.
An unintended consequence of this trend is that more and more people are passing away with vehicle debt. What happens to your vehicle, and the debt that's attached, when you die? Do your kids or spouse inherit your car loan or lease?
Dealing With a Car Lease After a Death
A vehicle lease is a contract, so if you're managing a deceased person's affairs, the first thing you should do with regard to a vehicle lease is to review its terms. Death may be deemed an "early termination" of the lease, and payment obligations may continue. If there is a co-signer on the lease, he or she may be liable for future payments; otherwise, they are likely to be the responsibility of the deceased's estate.
While reviewing rights and obligations under the lease, make sure that lease payments are kept up; failure to make payments can limit your options, especially if you or someone else in the family want to take over the lease and the vehicle.
You should also notify, as soon as possible, the dealership or leasing agency. It is likely that they will require proof of the lessee's death and documentation authorizing you to act on behalf of the estate. It's possible that a vehicle company will allow you, as administrator of the estate, to return the vehicle and cease payments in exchange for a flat fee. Even if the dealership agrees to terminate the lease without requiring further lease payments, understand that there will likely be fees and charges for various things such as excessive wear and tear and processing paperwork for the repossession.
Remember, whatever funds are due to the lessor, they can and should be paid from estate funds, unless an heir has made an agreement to assume the lease.
What Happens to a Car Loan When the Owner Dies?
In the aftermath of a death, it can be easy to forget to make a payment on the deceased's car loan. Under Ohio law, a lender may choose to repossess a vehicle serving as security on a car loan in default. Technically, the loan is in default if the payment is even one day overdue! The lender, or a repossession agent acting on behalf of the lender, can repossess the vehicle at any time or place, but may not breach the peace to do so.
Entering a closed garage is considered a breach of the peace, so if you're unsure of the payment status of a deceased loved one's car, make sure it's behind a closed door until you can get payments squared away. Creditors are not required to notify you before repossession.
If the deceased was married, and their spouse was also listed on the loan, the surviving spouse has the option of bringing the loan current. If the vehicle is repossessed, the surviving spouse may redeem it by paying the past due amount, along with the cost of repossession up to $25, and a deposit in the amount of up to two car payments.
Of course, a spouse or heir may elect not to redeem a repossessed vehicle, but as with a vehicle lease, that doesn't mean that financial obligations go away. The estate would then remain responsible for any amounts due, so long as the creditor makes a timely claim against the estate.
In Ohio, it's also possible for a car owner to pass the vehicle on via a transfer-on-death designation. In that case, the new owner would also have responsibility for any debt on the vehicle and should contact the lender regarding the status of the vehicle and how to assume payments.
If you're concerned about your rights and obligations regarding a deceased loved one's vehicle and debt, it's a good idea to talk to an experienced Ohio estate planning attorney before taking any action.