What is the "best" way to buy a vehicle for a relative?
January 21, 2010 11:30 AM   Subscribe

Have made the likely-unwise decision to help my brother buy a vehicle. What is the least-messy way to accomplish this? Absurd level of detail, and...

My brother, a few years ago, "bought" a very expensive work truck with my grandfather's assistance (i.e., my grandfather took out the loan, with title and insurance in his name). This was fine until my Grandfather's death a few months back... without a will, leaving an ongoing nightmare of an estate brawl. The vehicle will basically be sold one way or another at this point (though my brother can't afford to continue paying off/running it without the assistance he was being given in any case).

Facing impending (weeks) financial implosion due to this and the resulting inability to work as a contractor when the vehicle is gone, he came to me seeking help to buy something work-worthy that was more manageable. Based on the logic that if I declined he'd just lose his house and his family'd end up on my doorstep before long anyway, I decided to help -- with caveats.

The caveats: I'm adverse to co-signing any loans, titles or insurance, based on past events. I'm a worst-case-scenario planner, and not only do I not want any family member dinging my credit record (which they would), I also do not want to end up repeating the mistakes my grandfather made. So, I have borrowed the money from myself (401k wise) as the simplest and fastest option, with the plan to title and insure the vehicle in his name only. I've ensured my own budget can safely absorb repaying the loan on my own, to be extra safe.

The question is... what NOW? I turn out to have some complicated options:

- I could just give my brother the money and let him deal with the rest. I would exceed the 2010 annual "gift" threshold set by the IRS in doing so, though it wouldn't if I "split" the gift with his wife. I also could file extra paperwork to have it taken off my lifetime maximum gift exemption threshold, but that seems silly, and I'm not certain it even applies in this case -- because the loan I made myself is spread out over more than a few years anyway. While I know this is a LEGAL and ultimately defendable option, can it be done with getting dinged for an audit?

- I can buy the vehicle myself, as the State of Michigan does allow me to sign a title over to a direct family member without double-dipping on sales taxes. However, I'd then need to also insure and title the vehicle myself, go do the transfer, then cancel the insurance... a whole lot of hassle and time, though not much more expense. But in this case I might well still be subject to the above gift tax issues, and have complicated things for myself by giving the vehicle over to one person instead of money to two.

So is there a "right" way to do this? There must be, because people richer than I buy vehicles for family often enough -- so how do you buy a relative a vehicle when the vehicle is over the gift tax threshold, and not cause yourself a nightmare later?

Note: as to why nobody else helps... there just isn't anyone else able to. This isn't a question of whether this is a good idea for me personally... I know it isn't. I just want to expose myself only as much as absolutely necessary to get this done.
posted by Pufferish to Work & Money (9 answers total) 1 user marked this as a favorite
There is a right way to do this. It's called "getting a lawyer."

What you're going to want is to set up a loan with the vehicle as a security interest. This will give you the ability to repossess the car should he default and will ensure that you get any insurance proceeds if the car is wrecked. It will also give you the ability to require that the car be properly insured.

Any local attorney will be able to do this, but the combination of drafting a contract which is significantly more complicated than private individuals generally require plus registering a security interest with the Secretary of State means that you definitely need a lawyer here. Should only take an hour or two, but you're looking at a few hundred bucks either way. You can fold the attorney's fees into the loan if you want (and yoru brother agrees).
posted by valkyryn at 11:46 AM on January 21, 2010

There is no reason that he needs a car that costs more than $11k unless his job involves transporting a dozen passengers around. So I think the answer to your question about the gift threshold is "buy a cheaper car."

In answer to your other questions, I agree with valkyryn: if you have any expectation of seeing this money again, get a lawyer. If you don't want to see the money again, make it a gift, not a loan, and don't ask for repayment. Anything else is a recipe for disappointment, financial hardship, and familial discord.
posted by decathecting at 12:06 PM on January 21, 2010 [2 favorites]

"buy a cheaper car."

I was going to suggest this. A decent F150 can be had for $4k or less.
posted by anti social order at 12:45 PM on January 21, 2010

Response by poster: There is a right way to do this. It's called "getting a lawyer."

I realize that's always the "best" answer to questions like these, but I'm not convinced it fits in this case. At that point, I would assume an entirely new and fun set of tax complications to deal with (per the IRS "loans at less than market value" provision). While it would definitely be the option most likely to get me repaid, it would also be the most likely to cause drama down the road (well, aside from saying 'no').

I do know this is not the "wisest" course of action, really I do. But I am in all seriousness looking to get this done and have it over with, even if it means never being repaid. Frankly, I assume I will not be -- I've never had a family member repay me without it involving the death of another family member anyway, so it's practically preferable.

(on preview: contractor-level work truck, worksite worthy. If vehicles of that ilk are indeed available that inexpensively, I need to look harder for them... but I shall now.
posted by Pufferish at 12:49 PM on January 21, 2010

Yeah, look more carefully. I've just come through the cheap used car buying mill and man, if I'd had 8 or 9K to spend I could have done WELL. There are lots and lots of used trucks out there. Most of my contractor friends drive beater trucks anyway; they don't want a fancy truck because they're going to kill it in a couple of years no matter what.
posted by mygothlaundry at 12:52 PM on January 21, 2010

Let me put it this way: if you have enough assets that you need to worry about the lifetime gift cap, you don't need to worry about whether or not you get repaid. Make it a gift, and figure out the easiest way of doing so.

If you want to get repaid, get a lawyer. Only way to make sure it happens.
posted by valkyryn at 1:15 PM on January 21, 2010

Just chipping in to say that, unless he needs something very specific like a service bed or a fifth wheel or something, 11k definitely seems high.

And that valkyryn has it, I think.
posted by box at 2:04 PM on January 21, 2010

Can you buy the existing truck from the estate at book value? Assuming you think book value is fair. Or pay the remainder of the loan from several years ago and transfer ownership to your brother.
posted by saucysault at 7:36 PM on January 21, 2010

Response by poster: The existing truck is actually (much) more expensive either way, scarily enough.

Thanks for the suggestions, all. Still not really sure what I'm going to do, yet.
posted by Pufferish at 9:27 PM on January 21, 2010

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