As car enthusiasts, most of us dream that one day some long lost great uncle will leave us a wonderful old car – say, an even-numbered Ferrari race car or a totally original D-type. The reality is that a car nut is more likely to inherit a junker from Uncle Bert, who remembers their affection for old oddities. Further, inheriting a car is not as easy as one might imagine. If the bequeathed vehicle is of the less interesting variety, the process involved may leave the “lucky” collector wondering why he or she bothered.
Like real property (owned solely by the decedent) and most other property, automobiles must pass through the “probate” process in order for the inheritor to legally take title to it. Some property (life insurance proceeds passing to the named beneficiary, real property held by “joint tenants” (two people) passing to the survivor, etc., can pass to the heir without going through the probate process. Automobiles, however, generally always need to pass through probate (or a simplified probate process in certain cases) to create a clean title for the inheritor.
Probate is the process that transfers legal title of property from the estate of the person who has died (the “decedent”) to his or her proper beneficiaries. The probate process also allows for the collection of taxes due as a result of the inheritance and a mechanism for payment of outstanding debts and taxes of the estate. The net result of this process is the passing of property (in this case an automobile) into the hands of the rightful heir, with a clean and unencumbered title. In other words, it leaves the inheritor with a title that he or she can take to the Department of Motor Vehicles (or Secretary of State) and use to obtain a registration (assuming the car is roadworthy and meets the other applicable state registration standards).
Probate is generally handled in the jurisdiction where the deceased permanently resided at the time of his or her death. In many states, the court is called the Probate Court. Others, however, insist on being unique: In New York, for example, the probate court is known as the Surrogate’s Court, while in California it’s the Superior Court, Probate Division.
The probate process is generally simple (unless the will is contested, in which case the process can be lengthy and exceedingly expensive). Assuming there’s a will, it is the responsibility of the executor or executrix, working under the supervision of the court, to administer the estate effectively. There is no legal requirement that an attorney be used for probate, but in practice an attorney is almost always retained, particularly if the estate is substantial. There are too many formal procedures and filing requirements for a lay person to want to handle probate alone – to do so could expose him/herself and the heirs to liability.
Once the probate process is complete, our hypothetical enthusiast will be the proud new owner of some wonderful vehicle. Clean title in hand, the new owner should be able to register the vehicle. Sales tax will generally not be due, but personal property or use tax may or may not be due at the time of registration (or in the future, in states with a recurring use or personal property tax). These laws differ on a state-by-state basis.
The final consideration in inheriting a classic is what happens when it comes time to sell. The sale of an inherited automobile is generally the same as in the sale of any other (remember, the clean title was obtained through the probate process) with one exception: Taxation. The heir’s cost basis on an inherited vehicle is the fair market value/appraised value at the date of the decedent’s death. If the vehicle has appreciate substantially since then (i.e., while owned by the heir) then capital gains tax will be due on the difference. In this case, if an appraisal was not done at death or as part of the probate process, it may become necessary for a market expert to help establish the fair market value at the date of death. In the case of classics very likely to appreciate (think the D-type again), it’s wise to simply have the vehicle appraised during the probate process or directly upon inheritance.
We may not all be lucky enough to have a rich relative leave us a D-type. In any event, the information provided should help make the path from mourner to driver a smooth one.
Alex Leventhal is an attorney and car collector living in New York City. His early practice experience included the representation of new-car dealers and dealer groups engaged in complex transactions, as well as other merger and acquisition business. Alex currently owns a Ferrari Berlinetta Boxer 365 GT4 and a Dino 308 GT4, along with an Aston Martin V-8 Vantage and other European collector cars. He's also director of the Aston Martin Club of North America.