If someone you love has leased a car, don't think the payments automatically stop just because the person died. Ending the lease isn't always as easy as walking into a dealership and handing over the car and the keys. In most cases, the lease carries on and the deceased person's estate becomes responsible for making the payments. The executor or next-of-kin might try to cancel the lease by following the steps set out in the contract, but that could result in hundreds or thousands of dollars in "early termination" fees.
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Check Whether the Lease Suspends on Death
The first step is to figure out whether the lease automatically ends upon the death of the owner. Ford Motor Credit and Mercedes-Benz Financial Services are two companies that have been known to forgive the lease obligation when the owner dies. As long as the account is current, the family can return the car and owe nothing further. Not all companies are as kind. The majority of auto leases simply continue until the end of the term or until the owner ends the lease early by following the steps set out in contract. While reviewing the company's policy, make sure you keep up the lease payments. If you don't, the auto company can repossess the vehicle and sue the deceased's estate for the past due payments. This will seriously limit your options if you or a family member decide to keep the car by taking over the lease.
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Figure Out How Much You Owe
Assuming there's no automatic cancellation when the owner dies, the executor of his estate takes over responsibility for making the car payments. The executor may cancel the lease on the owner's behalf but she will have to follow the cancellation clause in the lease and pay the penalty. This typically will be the difference between what's due on the lease and what the company can get from selling the car, or a lump sum "early termination" fee. Call the leasing company and explain that the owner has died. Ask the representative what the remaining payments are under the lease and what the "early termination" fee will be if you decide to settle the account.
Send a Cancellation Notice
Generally, to cancel the lease, you will need to send a written cancellation notice to the auto company along with the death certificate and documentation that authorizes you to act on behalf of the estate. There's no specific form of notice, but be sure to follow the instructions set out in the lease contract or the dealership might not accept your cancellation. Next, you'll need to make arrangements for the auto company to collect the car. Most companies will auction off the vehicle, use the proceeds to settle the account and bill the estate for any deficiency balance. The executor is responsible for paying the bill from the deceased's assets such as his bank account, stocks or property.
Consider All Your Options
In some cases, it might be cheaper to pay off the car and keep it. Even if the dealership agrees to cancel the lease in exchange for a flat fee, the estate could be liable for things such as excessive wear and tear. Another option is to transfer the auto lease to a family member who needs a car. This means that someone else takes over the car and the payments. Check with the dealer about how someone can assume the lease — most times, the new lessee will have to pay a nominal transfer fee, but this usually is much lower than the fee for breaking the lease.