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George F. Bearup, J.D. Senior Legal Trust Advisor

27-Jan-21

Motor Vehicle Transfer on Death Bill

Take-Away: The Michigan State Bar’s Probate and Estate Planning Council is once again prepared to support a Bill that would enable the transfer of title to a motor vehicle with a beneficiary designation.

Background: For a few years now Bills have been introduced with Michigan’s Legislature to permit the transfer of title to a motor vehicle on the death of the own by a completed beneficiary designation, much like title to a marketable security can pass on the owner’s death by a TOD beneficiary designation, or the transfer of a bank account with the use of a POD beneficiary designation. The obvious import of such a Bill would be to avoid probate of a motor vehicle on the death of the vehicle’s owner.

Pros and Cons: There are several perceived advantages associated with a Motor Vehicle Transfer on Death Beneficiary Designation, and only a couple of drawbacks.

Advantages: The advantages arising from a transfer-on-death beneficiary designation include:

  • Avoiding Probate: Title to the vehicle would pass to the designated beneficiary without having to go through probate. While title to a vehicle can be changed at the Secretary of State’s office if under $60,000 in value without Letters of Authority, the vehicle is still a probate asset if a probate proceeding is initiated on behalf of the decedent.
  • Facilitates Asset Distribution: Such a beneficiary designation allows the asset owner to specify the designated beneficiary, i.e. future owner, of the vehicle. This, in turn, facilitates the estate’s Personal Representative to distribute the decedent’s other assets after death.
  • Retained Control: Like a TOD or POD arrangement, the title holder retains control over the asset, i.e. the vehicle, until death; the named beneficiary has no access to, or control over, the asset so long as the owner is alive.
  • Ease of Modification: A TOD beneficiary designation form for the vehicle is not permanent; it can be revoked or modified at any time by the owner  without the beneficiary’s involvement.
  • Creditor Avoidance: TOD registration for a vehicle can allow for creditor avoidance in some limited situations. This could provide a benefit for lower socio-economic beneficiaries who rely on access to a motor vehicle for access to employment.
  • Easy to Understand: Most people are already very familiar with the role and purpose of beneficiary designations in light of the fact that IRAs, 401(k) accounts, life insurance are all transmitted by beneficiary designation, not to mention TOD (investments) and POD (bank account) transferred by beneficiary designation. Some states, but not Michigan, also permit the transfer of title to real estate by a beneficiary designation.

Disadvantages: A couple of the drawbacks with regard to the use of a TOD beneficiary designation to transfer title to a motor vehicle on the owner’s death include:

  • Creditor Avoidance: Needless to say, the creditors of the decedent are anxious about an easy to liquidate asset not being a part of the decedent’s estate when they have filed claims against the estate for payment. This might explain the lack of enthusiasm of the Michigan Bankers Association for this proposed Bill.
  • Fraud and Elder Financial Abuse: Like existing TOD and POD beneficiary arrangements, the transmission of title to a motor vehicle by beneficiary designation is ripe for fraud and misuse. Title could be transferred and recorded without the knowledge or consent of the owner/transferor.
  • Casualty Insurance:  Unclear is how long the deceased owner’s motor vehicle insurance coverage would remain in effect after the owner’s death. Example: The vehicle owner dies with a TOD beneficiary designation in effect, passing the title to the vehicle to the owner’s grandson. The grandson does not re-register the title in his name. By chance, given his poor driving record, the grandson is coincidently uninsurable. Can title be transferred and registered in the grandson’s name, as the decedent intended?
  • Where Would the Statute be Placed?: Less of a disadvantage and more as complications if the Bill becomes law are:
  • Where Would the Designated Beneficiary be Identified?: Does the TOD beneficiary designation appear on the face of the title to the motor vehicle, or will a separate beneficiary designation suffice?
  • Where Would the TOD Statute be Placed?:  Where would the vehicle TOD statute be ‘parked?’ Michigan’s Motor Vehicle Code [MCL 257.236]? Michigan’s Natural Resources and Environmental Protection Act which applies to title  to watercraft [MCL 324.80312]? Article VI of the Estates and Protected Individuals Code (EPIC) which already covers TODs (securities) and PODs (bank accounts?)
  • Will there be a Dollar Limit on the Value of the Vehicle Transferred Via TOD?:  Should there be a value limit, expressed in dollars, of the motor vehicle that can be transferred via a TOD beneficiary designation. Example: Ohio’s statute places a dollar value limit of $65,000 per vehicle, but Indiana’s statute does not impose a value limitation on the vehicle being transferred by a beneficiary designation.
  • Will Existing Liens Have to be Removed First?: Does a lien against the title to the vehicle have to be resolved prior to the effectiveness of the beneficiary designation? Current Michigan law allows an heir to transfer the decedent’s motor vehicle using a death certificate. [MCL 257.236.] The current Certification From Heir to a Vehicle requires that a lien is terminated first before title can be changed.
  • Motor Homes?:  Some ‘swanky’ motor homes can cost more than $500,000. Motor homes are technically ‘motor vehicles.’ Will motor homes be treated the same as Chevy Cruze, with title to an expensive motor home passing via a simple beneficiary designation?

Conclusion: The proposed motor vehicle beneficiary designation Bill is just one of many Bills the Probate and Estate Planning Council has identified, and put into form as proposed Bills,  as necessary to streamline Michigan’s probate laws and expedite (if not completely avoid) probate on an individual’s death. Not much legislation came from Michigan’s Legislature in 2020 due to preoccupation with the pandemic and in-fighting with the Governor. Hopefully, many of these Bills that will have to be re-introduced in Lansing in 2021 will be given a fair hearing by the Legislature so that many outstanding questions with regard to probate in Michigan can be resolved, and the probate process can be streamlined and expedited to save families fees and expenses on the death of a loved one.