What Happens To A Leased Vehicle When Someone Dies?
By Larry Li
August 1, 2022
Car leases have grown in popularity over the past decade as people want to lease a new car for a few years and then return it for a newer model.
But what happens to a leased vehicle when someone dies?
If somebody with a leased vehicle passes away, the lease’s terms are still in effect. Therefore, the lease does not end just because somebody passes away. While some car leases offer early termination due to death, most leases still require full payment from the descendant’s estate or a cosigner on the lease.
Usually, debts and leases don’t expire or automatically terminate because someone passes away. For this reason, it’s important to learn what steps to take when a family member or loved one passes away with a leased vehicle.
In this in-depth guide, you’ll learn:
If a car lease ends when you die
Who claims ownership of a leased car after someone passes
Who is responsible for paying your car lease when you die
If you can transfer a car lease after the lessee dies
Does A Car Lease End When You Die?
When somebody passes away with a leased vehicle, the leasing contract generally doesn’t automatically terminate because of the death. Instead, the specific contract and who’s responsible for the vehicle lease typically determines what can and does happen if the lessee passes away during the lease term.
If there was a cosigner on the lease, it’s usually the cosigner's responsibility to pay off the lease since they are tied to the contract’s financial obligations. However, if there isn’t a cosigner or co-borrower on the lease, the deceased individual’s estate is responsible for repaying the remaining payments on the contract.
Sometimes, vehicle leasing contracts allow for early termination due to death. If early termination is available, the individual managing the deceased’s estate must review the terms in the contract to determine if the lessee's death warrants an early contract termination. Typically, they must provide a death certificate and proof that they are the estate administrator.
However, early contract termination usually requires a flat fee and for you to return the vehicle.
If the lessee was behind on car payments, the leasing company might not allow for early termination. Instead, the leasing company can repossess the vehicle and require the estate to make the remaining payments.
The early termination of vehicle leases in most contracts results in the following:
All remaining payments of the vehicle lease are immediately due and payable. For example, if the lessee passes away with three years remaining on the lease, the lease requires payment of the remaining three years from the descendant’s estate.
Early termination fees are due. These fees typically vary by leasing company and auto manufacturer.
The vehicle must be returned, and the early termination provisions of the lease usually assess costs to the lessee for transportation, storage and preparation of the vehicle for sale, and the leasing company may assess the negative equity between the lease and the current value of the vehicle.
Who Claims Ownership of The Leased Car?
If there is a cosigner on the leased car, the vehicle becomes the cosigner's responsibility. Therefore, the cosigner claims ownership of the leased car and will continue making payments for the car lease.
However, if the descendant bought credit life insurance on their car loan, the insurance company claims ownership of the leased car and is responsible for covering the debt. This occurs even if the lease has a cosigner or surviving spouse.
Furthermore, if there wasn’t a cosigner on the lease but the owner named a beneficiary, anyone who inherits an unpaid car loan claims ownership of the leased car and has the option to take on repayments if they want to assume the loan. Otherwise, the car lender may repossess the vehicle.
Who Is Responsible For Paying Your Car Lease When You Die?
The primary responsibility for paying off the car lease falls onto any cosigners or co-borrowers on the loan. If a spouse, friend, or family member cosigned on a loan for the car, it is their duty to take over the car payments on the lease after a death. If they cannot afford the car payments, the leasing company may repossess the car.
If there were no cosigners or co-borrowers on the lease, the descendant’s estate is responsible for maintaining lease payments. However, if the lease is insolvent, the lender will typically repossess the car to recoup its losses. An insolvent estate is when the debts owed outweigh the assets or value the estate owns.
Can You Transfer A Car Lease After The Lessee Dies?
It’s possible to transfer a car lease to another individual in the event of a death. This way, you can prevent the lender from repossessing the vehicle.
Here’s what you’ll need to do to transfer a car lease after the lessee dies:
Step 1. Send the Lender the Descendant’s Death Certificate
Notify the leasing company about the lessee’s death as soon as possible so you can avoid any defaults or delinquencies on the loan. This involves sending a death certificate and a letter to the lender notifying them of the death. You should also ask the lender if there are any specific requirements to transfer the car lease.
Step 2: Ensure Payments Are Covered
Reach out to the lender to ensure somebody is covering the repayments, whether it’s the estate or a cosigner. Otherwise, the lender may try to repossess the car.
Step 3: Transfer the Title
Each state has its own rules for title transferring the title of a car if the owner dies. Reach out to your local DMV to find out what you need to do.
Step 4: Pay Registration Fees and Taxes
The next step is registering the car in your name and paying the same taxes your state requires after selling any vehicle.
Step 5: Sign Up for Car Insurance
Sign up for the legally required car insurance for your new vehicle.
Step 6: Refinance or Pay Off the Loan
Pay off the loan according to the current rates and terms. If you want to try to get better terms on the contract, you can consider refinancing with a different lender to help you save on interest payments. You can talk to a financial advisor or the car lender regarding refinancing options.
Planning For The Future
Depending on the lease agreement, the presence or lack of a death clause, and the amount of money owed on the lease, the best option depends on your situation. In some cases, it may be cheaper to pay off the car and keep it. On the other hand, you may also have a family member that needs a car and wouldn’t mind having the lease transferred to them.
However, the best plan of action you can take is by planning for the future with Trustworthy. Trustworthy is an innovative digital storage company dedicated to storing and managing all of life’s sensitive information. With Trustworthy, you can safely store family IDs, passwords, estate planning documents, insurance papers, and much more.
Best of all, Trustworthy uses a secure and easy collaboration tool to help you share these essential files with those who need them. For example, you can upload your estate planning documents and car lease contract to Trustworthy. Then, you can give your spouse, or family members access so they can manage the future in the case of death.
Trustworthy (click here to start your free trial) keeps your family aligned and provides all the tools needed to manage a car lease and estate after somebody passes away. Featuring state-of-the-art security protocols, you can rest assured knowing your personal information is protected.