AUTOMOBILES IN ESTATE PLANNING
By: Ethan R. Okura
Many of my past columns have focused on how to structure your estate plan to protect your home. I’ve discussed protecting your primary residence and other real property from probate through the use of revocable and irrevocable trusts, through joint ownership or tenants by the entirety ownership and through revocable transfer on death deeds. I’ve also discussed how to protect real property from the threat of nursing home costs by giving property directly to your children or to an irrevocable trust more than five years before you need to enter a nursing home. We’ve also covered how to protect your home from lawsuits and creditors through tenants by the entirety ownership (either individually or in revocable trusts), through a limited liability company with equity stripping or, best of all, through the proper use of irrevocable asset protection trusts.
It recently occurred to me that I haven’t written much about motor vehicles and how best to own, hold and transfer them, as well as how to navigate the complicated bureaucratic red tape to make sure you’re legally protected from liabilities, creditors, claims and nursing home costs. So, in this column, I’ll do a quick run-through of how some of these matters should be handled.
Transfer After Death
Hawai‘i state law allows for the transfer of motor vehicles registered to a deceased person without having to go through probate, regardless of the number and value of the vehicles. This process requires that an Affidavit for Collection of Personal Property form be signed and sworn to before a notary by the appropriate person in relation to the deceased. The Circuit Court for the county in which the deceased passed away may have a form for this affidavit that can be filled out by a relative or other appropriate successor. Alternatively, a qualified attorney can assist in the proper preparation of such a document to help ensure that you have not violated any laws or exposed yourself to undue liability when using this form.
Sale of Vehicle
When you sell your automobile, the buyer takes possession of it and drives away with the vehicle before the name of the registered owner has been changed from your name to that of the buyer with the Department of Motor Vehicles. By law, you are required to fill out and submit the Notice of Transfer form at the top of your Certificate of Title. If the perforation has been torn off and the form is lost, you can submit an alternate Notice of Transfer form containing the same information. In the process of turning over the vehicle to the buyer, you also surrender the Certificate of Title, registration and safety inspection forms to the buyer. However, you should always keep the Notice of Transfer form and deliver it to the DMV yourself. The seller is assessed a fine if he or she does not submit it on time and the seller should not rely on the buyer to take care of it for you.
Although the law does not require it, I always recommend that you prepare a bill of sale that both you and the buyer sign stating the details of the sale, including the purchase price and the date and time of the sale. Why? Consider this: If the buyer gets into an accident on the day of the sale — before the registration is changed from your name to the person you sold the vehicle to — you can use the bill of sale as proof of the time you sold the vehicle to the buyer, thus releasing you from liability, as you were no longer the vehicle’s owner at the time of the accident.
Motor vehicles are exempt assets in qualifying for Long-Term Care Medicaid to cover nursing home costs. However, that does not mean that you can do anything you want with the vehicle while qualified for Medicaid. If you transfer your vehicle for less than fair market value within the five years prior to applying for Medicaid or while qualified for Medicaid, you will be assessed a penalty period based on the difference between what your vehicle was worth and any amount you received in exchange for it.
If you sell your vehicle for its fair market value while you are in a nursing home and qualified for LTC Medicaid, the cash proceeds of the sale are considered non-exempt assets. If the proceeds of the sale increase your total non-exempt assets to over $2,000, you will be removed from LTC Medicaid and will have to spend the sales proceeds on your care until you run out of money. You can then apply for LTC Medicaid again.
You may allow family members or friends to use your automobile while you are in the nursing home as long as you don’t change the ownership from your name to their name. They can use it to visit you in the nursing home, run errands for you or for any other reason.
Protecting your assets from creditors and determining the best way to retain title to your vehicles are more complicated topics that I will address in a future column. If you have any questions about how to correctly hold on to or change ownership of your motor vehicles, I urge you to consult a qualified attorney to get the right advice before making a potentially costly mistake.
© OKURA & ASSOCIATES, 2019