Did she inherit the car or not?

[Chopsticks888]

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.

Morally she should deduct 5 k from he share.

Legally it's a debt within the estate and they should each get 50% once debts paid.

I'd judge her tho.

Unfortunately AFAIK if it was a gift that was made 2 years ago then it will be part of the estate so the value of the car will be included in the shared estate. I think it's 7 years rule

The seven year rule is about counting gifts (or not) for inheritance tax. This estate isn’t big enough to attract IHT.

Ultimately whilst yes it is a debt to the estate it then once the debt is paid becomes an asset to the estate and so if the will states 50/50 then it would be owned jointly- so ultimately she shouldn’t just receive the car- it would need to then be sold etc to have it split.

She has used funds from the estate to pay off the loan.

So when it comes to dividing the remainder of the estate, she has already had £5k out of it, hasn't she? So the way to do it is look at the value of the remaining estate, say for (instance) £45k and add back the £5k to that, making £50k. Halve that = £25k each.

There's £45k in actual cash, so your DH gets his £25k, and she gets the balance, which is £20k. That, plus the £5k she's already had adds up to her £25k.

Job done.

She has used funds from the estate to pay off the loan.

She has behaved correctly in settling the debts of the estate (subject to the type of finance it is, as noted above by a PP)

If FIL had an overdraft or had taken out a personal loan to buy an item, that debt would have to be settled, even if he used the loan monies to eg buy someone a new sofa or whatever.

I agree with SIL, assuming she's telling the truth about believing he bought it for her outright.

But from someone whose (living) parent hasn't been fair or equal with financial gifts it's hard and I sympathise. We're doing our best as siblings not to fall out over it but I will be doing things quite differently with my own children.

I am guessing from reading into your posts - the car was initially leased and when it came to either hand the car back to the dealer or pay the final bubble payment - your f'n'law got out finance and paid the bubble payment and then gifted the car to her.
It is very strange she transferred the car to her name while her dad took liability for the loan...but I guess you are right regardless if he had intended to pay the car off it makes sense that this would be his wishes.

Just to make some clarifications, DH has confirmed the car was on a PCP. SIL believed her father had bought it outright for her, only after his death was it discovered that there was still 5K outstanding on it. SIL (after ok-ing it with DH), used money from the estate to pay it off. I am under the impression that she believed the car was 100% belonging to her, and had no idea it was financed and her father was paying a monthly amount for it. Since she needed the car and didn’t have the money, sorting it out this way seemed sensible. She dealt directly with the dealership so I don’t know exactly what sort of transaction took place, only that she needed the 5K to make the car hers.
DH assumed that once the house gets sold, debts cleared (FIL had an equity release plan) and assets divided, it would come out of her half. She assumed that since it was her father’s debt, it should come out of the estate, and she’d keep the car.
DH has long accepted that there is financial inequality in terms of parental gifting and FIL perceived her to be in need of support and helped her out at times. SIL is very private with her financial affairs and has never spoken about any gifts or transactions, apart from this instance.
DH will likely just leave it now and accept that £5K is not worth arguing over, and possibly the right course of action anyway. But he will be a bit miffed about it.
Thanks for all your input, it has really helped.

I can just imagine her reaction if the shoe had been on the other foot but if DH has accepted this pattern of behaviour then challenging it now whilst they're both grieving is definitely not the right course of action. I'd make sure DH's share of the inheritance was well locked away before she wants a new car in the future!

DH assumed that once the house gets sold, debts cleared (FIL had an equity release plan) and assets divided, it would come out of her half. She assumed that since it was her father’s debt, it should come out of the estate, and she’d keep the car.

Honestly, both were reasonable assumptions and it is a shame they didn't clarify between them before the payment from the estate (that both agreed) was made. I am glad they have a way forward.

The car was a gift from FIL to his DD so it is not part of his estate.

The fact he has an outstanding debt doesn’t affect SIL’s share in the inheritance, nor should she get £5k.

All debts from the estate should be paid off including this one from the estate funds and only then is whatever is left split 50/50 according to the will.

If the debt is in the FIL s name it should be paid the same as any debt against the estate. The registered owner does not mean the car belongs to that person but the name on the debt requires that person is liable.

Pay off debts in his name first

if debt is in her name It is her debt.

How the estate is split comes after everything is paid and refunds received.

Poor DH. Treated unfairly with fewer gifts and having this rubbed in his face when bereaved.

Legally, SIL might be right but morally I'd struggle. Just because you can, doesn't always mean you should. And she shouldn't.

She believed it was a gift that had been paid for outright. The fact is he didn't fully pay it off yet.
So I think it could be accepted that it was a gift so she can keep the car, but the remaining 5k should come out of her share. Simply as she's benefitted from the car and will continue to do so. that's presuming no car was gifted to or purchased for your husband. So she's already getting a good enough deal that is slightly favourable.

It is down to your husband and SIL to sort this out. Why are you so interested?

Given the update, morally I think things should follow the law here - the debt should be settled with the smallest cost to the estate possible. With a PCP normally that would either mean a smaller payment and the car goes back to the dealership OR a larger one and the car is then owned by the estate. Since the larger payment came out of the estate the car becomes an asset of the estate and it's value is distributed along with the rest of the estate (i.e. shared between DH and his sister).

I don't know how much difference letting the 5k go would make to your DH financially, but if it will make him resentful it would probably be better for him to insist on the law being followed and let his sister be resentful instead.

The car was bought by the estate and is an estate debt- it's was never given as a loan, the recipient was under the impression that it was fully paid for- the fact your husband didn't know it had been bought by their dad for his sister is inconsequential- if she wasn't expected to pay him back for it the debt should come out the state and then the estate divided.

The car hadn’t been bought by the estate, though. It was, in effect, a rental agreement with an option to buy at a later date. Their father died before he bought the car. The fact the sister was under a false impression doesn’t change that any more than DH being unaware of the arrangement.

Legally as it was a lease agreement (OPs post 06:42 yesterday) the car doesn't form part of the estate, and didn't belong to the deceased, so SIL has taken more than her fair share however it is not worth falling out over so I would let it lie.

This.

It’s not “just” £5000. What was the total cost of the car? I would guess around £15,000 minimum.

Could you split the difference, £2500 paid by each for the car. That way neither is ‘happy’ and a little fairer.