This column first appeared in the San Antonio Express News and other Hearst Newspapers on April 23, 2019.
Dear Mr. Premack: Now in my mid-80’s I have many friends, but I happily live alone. Sometimes I help my friends financially. Sometimes I help the adult children of my friends financially. I co-signed a note for the adult child of one of my friends when they needed to get a car. I thought I was being nice. But, last week in the mail I received a $30 bill for a toll road fee due on the car. I was not driving the car, not in the car, nowhere near the car. Why did I get a bill? What did I do wrong? – CW
When you co-sign an auto loan, the lending bank is taking a security interest in the automobile. If payments are not timely made, the lender has the right to repossess the vehicle. However, they can only create that security interest if you are listed as a co-owner of the vehicle. Hence, if you co-sign a loan then you are also going to be co-owner of the vehicle.
Your letter is a testament to generosity. It is very kind of you to assist your friends and their families. However, your generosity must be tempered with some concern for yourself and your own wellbeing. For instance, if the assistance you provide strains your own finances so you don’t have funds to provide for yourself, then you must cease. Further, if your friends and their families have been pressuring you into these gifts, they may be illegally exploiting your generosity. Gifts must come from your desire to help, not from their requests for assistance.
Further, you must consider federal gift tax laws. You can gift up to $15,000 per year per recipient without needing to get involved with the IRS. If you give larger amounts, then you must file a gift tax return. You can likely claim an exemption to avoid paying any gift tax, but must file the return to reap that benefit.
Let’s look at your situation with the car loan. The friend’s adult child drives the car, and must have used a toll road without having a pass. The toll collector ran the license plate, saw that your name is on the vehicle title, and sent the bill to you. Do you have to pay it?
The legal answer is that you have to pay the toll. You are an owner of that vehicle, it used the toll road, and the owner owes the toll. The practical answer is that the adult child should pay it, or your friend should pay it. You should contact them about it, and if they don’t jump to take care of this then you should wonder just how deeply they feel friendship for you.
This toll issue is just the tip of the legal iceberg. The bigger concern is legal liability if there is an automobile accident. Remember, you are co-owner of that vehicle. If the driver causes an accident, it is likely that you will be sued. To that end, do you have adequate insurance to cover any loss? If there are damages that exceed your insurance coverage, you could have personal liability for damages caused by the driver. Can your finances handle a million-dollar judgement? Would that cause your financial ruin?
If hitting the liability iceberg would sink your financial ship, then you must eliminate co-ownership of the vehicle. Find out if the adult driver can afford to re-finance the loan into her name only, and get title into her name only. Otherwise, consider paying off the loan in order to get your name removed, or try buying a really large umbrella liability policy to cover all likely risk to which you have exposed yourself.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.