Did she inherit the car or not?

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My FIL recently passed away leaving his estate to his 2 children- my DH and my SIL. A couple of years ago my SIL had a new car, there was no conversation about the car, and none was expected other than “What a lovely car” etc. It was just assumed she had bought it herself. When my DH and SIL were sorting through FIL papers they discovered that the my FIL had been paying for the car on finance. SIL said that she had believed it was an outright gift from him and was surprised that it still had £5K debt to pay on it. They are now having a disagreement about whether she should receive the outstanding £5K in addition to her half of the estate, or whether it should be included within her half of the estate.
I’d be grateful to get a wider perspective on this to help resolve it.

So as you've posted in Money Matters rather than Legal Issues, I'll offer an uninformed perspective! But it might be worth cross-posting to get a view from the solicitors who post on MN.

My initial reaction is that the entire value of the car should be deducted from her half of the estate. The car is part of her inheritance - the fact FIL hadn't paid for it outright is beside the point (although she should reflect on why an elderly man was taking out car finance to provide her with a car she could presumably have saved up for herself).

So let's say the car was bought for15K, rest of the estate worth 85K to make nice round numbers. 50K each but SIL's 50K is 15 of car + 35K cash, 5 of which she uses to pay off the remaining finance.

Strictly speaking I think what's meant to happen is FIL's estate pays off his debts first, so now there's 95K in the pot to be split, which is 85K cash and 10K of car. She gets 10K of car + 37.5K of cash, DH gets 47.5K of cash.

However, it sounds as if she's arguing she should get the car AND half of the remaining estate AND an extra 5K to pay off the finance? Sod that.

Gifts (not that the car necessarily was a gift, depending on who was the actual owner) need to be considered when valuing the estate, you can read about it here at MoneySavingExpert. I think it would be worth consulting a solicitor to get the specifics.

My questions are:

1. Who is the owner of the car? Is it SIL (so the car was a gift) or FIL, with SIL as the registered keeper.
2. Did FIL benefit from the car before his death, i.e. was it bought for SIL because she did all his shopping / took him to medical appointments etc?

I would imagine it depends on the type of contract and whose name it is in. If the car is leased in FIL's name, it should be returned to the lease company and the estate pays any termination fees. If the finance is a car loan in FIL's name, then the estate will pay the outstanding debt and the car goes into the estate for distribution according to the terms of the Will.

I would think the grey area will be whether the payments to date count as a gift. As the car was acquired two years ago, the payments could fall within the seven year rule for IHT so may need to be declared.

You need to see the finance document to clarify. Was FIL also paying the insurance and road fund licence? Do you have the V5?

F in L made a purchase witha payment plan, which he'd not finished paying off, so it was a debt that should be paid by the estate theoretically
But
Given that S in L has the car, I think she should, in this case pay it off, either from her own money, or from what she inherits

I dont really see why the estate should pay, which fundamentally means it costs the other recipient £2.5k of his inheritance- that doesnt seem fair to me

Thank you for your responses. The car was leased in FIL’s name but SIL is registered keeper and owner. It wasn’t used in anyway to benefit FIL as they live far apart.
SIL has used funds from the estate to pay off loan, and does expect to receive additional 50% of remaining estate and keep car. Her view is that the car was gifted two years ago, FIL didn’t tell her it was financed and had likely intended for it to be paid off before his unexpected death. Her view (which I do understand) is that as it was a gift, it should be honoured, keeping the spirit of it being a gift as her father had intended (FYI there was no will and the estate falls below IHT threshold.) DH view is that the outstanding £5k should be deducted from her 50%.

I think you father in law sounds like he intended it a gift separate to inheritance and agree with you SIL. It's about what his intention would have been.

I think it would help to know the sort of suns we are talking about. If both ‘children’ stand to inherit £12k each then this £5k is a big deal.

If there is a house to be split etc and they’re looking at £135k each then I would say that whilst it may seem unfair, it’s not worth falling out with your only sibling over £5k.

The car will be gone in a few years. It’s just a thing. Forget the £5k

The additional 5K should come from her half of the inheritance and she should count herself lucky

Is SIL the owner or the registered keeper? They're not the same thing. (She may be both, but you've also used the word leased which means maybe the car isn't owned by either FIL or SIL?)

I don't think gifts are only relevant to inheritance tax, I think the fact that they are included for tax purposes is because they form part of the deceased's estate, but this is the bit I'm struggling to find a reference for online, as it's only discussed in the context of IHT.

I also strongly doubt SIL would be saying the same if it was your DH who'd received a car outright 2 years ago and now still expected half of the estate after the car finance had been paid off.

How did SIL use the estate funds to pay the balance of the car debt if there is no will and hence no executor?

We had something similar with DMs estate. Before she died she actually said DH could have it but we didn’t need it and before she died Dsis had started using it for hospital appointments and we’d thought she could just have. When DM did die and my step brother (and my sister) were named as executor we were told it was part of the estate and weren’t allowed to just give it away.

what ended up happening was that it ended up on her drive way for a year with nobody driving it and when it came to sell it, it had depreciated in value so much my sister ended up getting it anyway 🙈

2 siblings stand to inherit £60-80K each depending on house sale, so £5K not overly significant. But I see both sides of this, and am interested in what others would do.

IANAL. But - especially as there is no will - the process should be “by the book”. First the estate settles its debts, including car finance. Second the balance should be split according to intestacy law, which is 50:50. The car is in her name and so isn’t an asset of the estate.

To the poster who said “why did FIL take out finance” - my parents have considerable assets and they took car finance on a low percent deal cos it saved them taking money out of an isa etc. It’s not necessarily because he couldn’t have afforded it outright.

The car loan is a debt so the estate pays it before the will is distributed, she doesn't pay it out of her share.

This. Exactly this. Poor fil would not want his kind act to be argued over in such a way. Give the man his dignity.

Your SILs take on it seems correct to me.

FIL gave a gift (how he financed it is irrelevant).
The Estate now has a debt to settle.
The beneficiaries share the net estate (after debt settlement) equally.

Morally, I think it would hurt to not feel as if we'd been treated equally, unless FIL made similar gifts to both siblings over his lifetime.

What was the purchase value of the car?

We can't really know what FIL's intentions were. I know that if my parents had bought me a car they would want that to be done fairly to my other siblings and so would want my share of the estate to be reduced to reflect the fact I had had some of my inheritance in advance, so to speak.

This all sounds very messy. If the car was leased then it wasn't "owned" per se. If the finance is all in FILs name then it was leased to him. In what way did DSIL own it? A V5 in her name does not make her the owner, just the registered keeper.

If there was no will then your SIL has no right taking any money from FILs bank accounts to pay off the lease. How has she accessed the money? If the death was recent (and sorry for your loss OP) then probate won't have been granted yet. Has your DH applied to be an administrator of the estate?

It was daft of FIL to gift something he didn't own outright.

I get why your DH is annoyed, but I agree with your SIL.

From one angle - the estate needs to pay his debts first, and then be split.

From another angle, he clearly meant for her to have the car, and he planned to pay it off, so it makes sense to do this first then divide the estate.

It’s an oddity of the exact timing of him dying. If it had beeen further down the line and the car was paid off, this wouldn’t even be a question.

Do you think they’d be amenable to you suggesting they split it, so DH gets £2.5k of it back?

BUT - was she actually the owner? Owner and keeper are different. IANAL but I would be concerned that legally he was the owner and therefore the car is in fact part of the estate. I think this needs a solicitor to look at it.

If your SIL is the registered owner of the car, then your fil gave it to her as a gift.

If he still owes £5k than that money (as with all debts) must be paid from the estate before money is distributed to beneficiaries.

Having said that, I have never heard of a lease where the owner can be anyone other than the leasee. I think you need to look closely at the contract.

Each sibling gets 50/50 of the estate. SIL uses her half of the inheritance to pay off the car debt considering it's her car, not your husband's. She's already received more inheritance due to being given a car (early inheritance).

As others said debt come out of estate

but from DH point of view it always shit no matter how old you are when kids are treated differently
the sil has already had a handout of thousands and he got nothing

I don’t think there is a mechanism for this to happen. It was FIL’s debt and should be settled by FIL’s estate before the estate is distributed. If SIL and DH want to rearrange the money between themselves afterwards, then that’s separate.

This is a different country so not sure if relevant to your situation:
my GF gave one of his DC a 30k loan, died a few years later.
it was decided that DC was inheriting 33% of estate (as 3 siblings) minus 30k loan. As otherwise that sibling has received more of overall estate.

I dunno about the legalities, but as the car debt is in FILs name I would assume both your DH and SIL take the hit.

The debt is settled and remaining estate is distributed between the two of them.

Whether FIL gifted unfairly or not isnt worth falling out over, and pulling the value of SILs car into the estate feels excessive to me.

Legally the car loan/lease should be paid through The Estate, the remaining money should be split 50/50. I can see both sides, SIL thinks car was a gift so she shouldn’t pay or have £5,000 deducted. You will have to enter this on the Probate Forms. You should also check with Finance Company who is responsible for the outstanding money owed, that may help you.