Question: My father recently died with an outstanding title loan on his car. I used my own money to pay off the title loan, do I own the car?
Loraine’s Answer: Please accept my condolence on the loss of your father.
Even though you paid off a debt on his car with your funds, his probate estate still owns the car (assuming that he was the sole owner and no right of survivorship applies to it). You don’t get ownership of the car automatically just because you paid off the loan. However, you now have a claim against the estate for reimbursement of the amount you paid. If there are assets in the estate that can be used to pay off any other outstanding debts that need to be paid from the estate, the Executor or Administrator may be able to distribute the car to you as payment for the amount you are owed.
Key Estate Planning Takeaway: Paying off secured debt owed by a deceased person, such as a car loan or a mortgage on a home, does not automatically entitle you to take possession of the asset that was subject to that debt. If you paid the debt from your personal funds, you do normally have the legal right to be repaid from the estate, but this may cause you to risk a situation where the estate’s assets are not sufficient to repay you in full if there are other, higher-priority debts and the estate is insolvent. You will also need to wait until the Executor or Administrator has been appointed and had time to properly administer the estate to the point where all debts can be paid before you will be able to get reimbursement or take possession of the asset you paid off. Instead of paying off a deceased person’s debts using personal funds, the best course of action is to pay only the minimum amounts on secured debts, to prevent the lender from foreclosing on or repossessing the estate’s assets until an Executor or Administrator can be appointed for the estate, and to notify holders of unsecured debt that the borrower has died and the estate is being addressed. Once appointed, the Executor or Administrator can work with the lenders on any secured debts and any other creditors, along with any party that may be interested in purchasing estate assets that are subject to secured debts, to figure out the best way to get the secured loan paid off and the asset title transferred.
This “Q&A with Loraine” blog series features answers from Morgan + DiSalvo Partner Loraine DiSalvo to questions posted on www.avvo.com. A key takeaway from each exchange highlights an important facet of estate planning.