Vehicles often exist in a gray-ish area when using a trust-based estate plan. Typically, my advice to clients is to leave their vehicles outside of their trust. This may be for a number of reasons, such as; 1) you may experience different levels of proficiency (and success) with different Virginia DMV offices and/or clerks when instructing them to retitle your vehicle to your trust; 2) your vehicle may not be very valuable and/or it is depreciating rapidly; 3) you have a leased vehicle; and 4) there may be better options available than titling the vehicle in your trust. Of course, if your vehicle is extremely valuable either because it is a new, high-end luxury brand automobile, or it is a collectible vehicle; then you may wish to consider braving the hassle of the Virginia DMV to retitle it to your trust. This article will discuss a somewhat newer option for your vehicle in relation to your estate plan made possible by Virginia Code §46.2-633.2: “Transfer of title on death.”
What is a TOD title transfer?
The Virginia Code allows an owner of a vehicle to place a transfer on death (“TOD”) designation on their vehicle title so that, upon the death of the owner, the ownership of the vehicle shifts to the designated beneficiary. This transfer will happen outside of the probate process and is not subject to the provisions of Virginia Code Title 64.2. As such, a TOD vehicle will not be subject to the reporting or taxing process of probate and is not considered a “testamentary transfer” for these purposes, even though the title transfer only occurs upon the death of the original owner.
Who can make a TOD title transfer?
Any owner who is a natural person (not a business entity) can add a TOD designation to the title of their vehicle. If the vehicle is owned by more than one natural person, all of the owners can sign a TOD designation to the title which will cause an effective transfer at the death of the last of the last designating owners. However, any surviving owner can terminate the TOD designation at any time prior to their death.
Who can be the designated beneficiary of a TOD title transfer?
Virginia Code §46.2-633.2(E)(1) is very specific in that the designated beneficiary of a TOD title transfer of a vehicle MUST be a natural person. Further, the VA DMV Form VSA 18 states the beneficiary may NOT be a business entity. Neither the Virginia Code, nor the Form VSA 18 specifically exclude trusts as a designated beneficiary for purposes of the TOD title transfer; however, this author’s understanding of this Virginia Code section and prior experience with the VA DMV on other matters leads me to believe that a trust would be considered to be equivalent to a “business entity” and not a “natural person.” As such, I do not believe that a vehicle owner can use a TOD title transfer to designate their revocable living trust as a beneficiary of the purposes of a TOD title transfer.
How do liens impact a TOD title transfer?
§46.2-633.2(D) and §46.2-633.2(E)(2)(c) are clear in that a TOD designation shall not be allowed on a vehicle that is encumbered by a lien or security interest; and/or a TOD designation shall be terminated if an application for the recoding of a lien or security interest has been filed with the DMV prior to the death of the vehicle owner. However, the Virginia Code further states in this matter that any transfers of a vehicle via the TOD mechanism SHALL be subject to any lien or security interested authorized under §46.2-644,46.2-644.01, or 46.2-644.02. As such, if a TOD transfer was affected on a vehicle that was otherwise subject to a lien that was not discovered in the process for whatever reason, that lien follows the TOD vehicle to the designated beneficiary. In effect, the vehicle is a secured asset.
What are considered “vehicles” for the purposes of a TOD title transfer?
The DMV will allow you to make a TOD designation on a motor vehicle, trailer, or semitrailer.
Can I revoke a TOD title transfer designation?
The owner can revoke a TOD title transfer designation by making a filing with the DMV. Also, the TOD designation is automatically revoked upon the sale, transfer or donation of the vehicle during the owner’s lifetime. The TOD beneficiary has no legal interest in the vehicle during the owner’s lifetime.
If I am the TOD beneficiary, how do I claim the vehicle?
The Virginia Code provides that upon the death of the owner, the TOD beneficiary must make an application to the DMV to issue a new certificate of title WITHIN 120 DAYS OF THE DEATH OF THE OWNER. This is done by submitting proof of the death of the owner. If this is not completed within the 120-day time period of the original owner’s death, the TOD beneficiary is stripped of their rights to claim the vehicle.