Vehicle Titling

Take-Away: When dealing with vehicle and boat titles, it is a good idea to not hold title to the vehicle in the joint name of spouses. Rather, the title to the vehicle should be held in the name of the person who most frequently operates the vehicle. This title holding is for liability protection purposes. While the title could be held in the name of a revocable trust, that might defeat the goal of confidentiality.

Background: A recurring challenge to an individual who wants to avoid probate is the need to retitle the settlor’s assets in the name of their revocable trust. Those assets held in the name of the trust on the settlor’s death will avoid the delays, expenses, and publicity that is normally associated with probate. The question often then arises if the title to the settlor’s vehicle should be retitled in the name of the settlor’s revocable trust. Obviously, there are exceptions to any generalization, but normally the settlor’s vehicle title should be maintained in the individual settlor’s name, not his/her revocable trust, nor should title be held jointly with the settlor’s spouse. Reasons for this recommendation follow:

• Revocable Trust- The Hassle Factor: Title to the vehicle could be formally transferred to a revocable trust. If that step is taken, the vehicle will avoid probate on the settlor’s death. Why this is not recommended is that often vehicles are traded-in on newly purchased vehicles every few years. The trade-in of the vehicle registered in the name of a revocable trust will require that either the trust instrument, or a trustee’s Affidavit of Authority, will have to be presented to the auto dealership that is asked to accept the trade-in, in order to prove the initial trustee has the authority to trade-in the vehicle. It is not the end-of-the-world to have to produce this additional documentation along with the vehicle’s title, but it can be a hassle, not to mention the reality that most trust settlors do not want strangers holding copies of their trust instrument. In sum, a revocable trust can hold title to a vehicle, but it carries with it a ‘hassle factor’ whenever the vehicle is exchanged for another vehicle. The same goes for the auto insurance policy; if the trustee is the insured, then copies of the trust may have to be provided to the auto insurer. In contrast to a daily-use vehicle, if the vehicle is an antique or collectible of intrinsic value, which is probably not the subject of a periodic trade-in, then its title should be registered in the name of a revocable trust in order to avoid probate.
• Secretary of State- How to Avoid Probate: As noted, a revocable trust is used to avoid probate of assets on the settlor’s death. If the vehicle is titled in the settlor’s name, then it will be subject to probate. However, Michigan has a statute [MCL 257.236] that enables the transfer of title to a vehicle or watercraft without having to process that title through protracted probate process. Instead, title to the decedent’s vehicle or watercraft in his/her name alone can be ‘processed’ directly at a local Secretary of State office [tip: go to a Secretary of State office in a rural county- the wait time will be cut tenfold], by producing the decedent’s certified death certificate, the certificate of title to the vehicle, and filing a Secretary of State form TR-29 entitled Certification From the Heir to a Vehicle. The vehicle’s title will be furnished by the Secretary of State according to the following priority: (i) surviving spouse first; and (ii) heirs, next. The primary limitation to this informal process to change title to a vehicle at the Secretary of State’s office [besides the inevitable wait for your number to be called] is that (i) the decedent’s solely owned vehicles cannot exceed $60,000 and (ii) there is no other property for which a probate court administration is required, which would be the case if all of the decedent’s other assets were titled in the name of his/her revocable trust. This informal process thus enables title to be changed either to a surviving spouse or to an heir who can then formally take ownership in order to use the vehicle, gift it to a grandchild, or instead sell the decedent’s vehicle and retain the sales proceeds.
• Joint Ownership Risk- Negligent Entrustment: Probate can also be avoided if the title to the vehicle is held jointly with another person. The usual form of joint ownership is “full rights of survivorship” or “full rights to survivor” on the vehicle’s certificate of title. Thus, in this situation, all that is required to transfer the vehicle to the survivor’s name is the title and a copy of the deceased joint owner’s death certificate for the Secretary of State to re-issue the title in the sole name of the survivor.
• Statutory Presumption: However, there is a reason why joint ownership of a personal use vehicle is not recommended. That reason is exposing the joint owner’s assets, or a married couple’s entireties owned assets, to potential creditors.  Michigan has statute that provides that the owner of a motor vehicle is liable for an injury caused by the negligent operation of a motor vehicle whether the negligence consists of a violation of a statute or the ordinary care standard required by common law. An owner is not liable unless the motor vehicle is being driven with his or her express or implied consent or knowledge. “It is presumed that the motor vehicle is being driven with the knowledge and consent of the owner if it is driven at the time of the injury by his or her spouse…or other immediate member of the family.” [MCL 257.401(a).]
• Example: Bud and Ann own their personal use vehicle jointly with full rights of survivorship on its certificate of title. Ann is involved in an auto accident while driving to the grocery store. A lawsuit is later filed against Ann for negligent driving. Bud is also sued based on a claim for negligent entrustment. The theory behind a negligent entrustment claim is that ‘Bud knew, or had reason to know’, that Ann was a bad driver. Despite that knowledge, Bud nonetheless permitted Ann to drive their vehicle in which her negligence caused the accident and injuries to the other driver. It is thus possible that a joint judgement will be entered against both Ann (negligent driving the vehicle) and against Bud (his presumed negligent entrustment of the vehicle.) If a judgment is entered against both Ann and Bud, the equity in their home that is owned by them as tenants by the entireties can be seized to satisfy the judgment entered against both Bud and Ann. If the vehicle Ann drove during her accident had been in her own name alone, and not owned jointly, then the personal injury judgment would have only been against Ann, and the equity that Bud and Ann held in their entireties owned home could not be exposed to satisfy Ann’s judgment creditor.

Conclusion: While title to a motor vehicle can be held in a revocable trust, and thus avoid probate on the settlor’s death, it is probably better to retain the vehicle’s title in the individual name of the settlor, unless the vehicle is an antique or collectible of intrinsic value. Joint ownership of the vehicle also will avoid probate on one joint owner’s death, but that form of ownership brings with it the risks of negligent entrustment claims, and in the case of a vehicle titled to spouses, a potential risk to their entireties owned assets. If the vehicle title is held in the individual’s alone, probate can be avoided on the owner’s death through the Secretary of State process outlined above. While that Secretary of State process is limited to $60,000 in value, there is currently a Bill pending in Lansing that would increase that vehicle dollar limit to somewhere around $100,000 (even higher for watercraft.)