Granddaughter buys back grandma’s house with touching surprise
“Are you kidding me?!” A car trip in Illinois became unforgettable when my granddaughter told her grandmother a story about buying her old house back.
Experts say America’s oldest residents still own more than a third of the country’s homes, but they need to face their own mortality and quickly decide how to transfer their assets to their heirs.
Baby boomers and older adults make up only 18% of the U.S. population, but they control an astounding 34.1% of the value of the housing stock, accounting for 29.6 million homes and a total home value of $13.8 trillion, according to an analysis of census data by the National Association of Home Builders (NAHB).
With so much at stake, estate planning experts are urging seniors to think carefully about the most efficient way to transfer what is often their largest and most valuable asset to their heirs. Over the past few decades, Transfer on Death Deeds (TODDs) have gained popularity for their simplicity and low cost, but depending on where you live, they may not be available to everyone. Additionally, because estate planning is always very personal, experts say TODD may not be right for everyone.
“Every family is different,” says Los Angeles-based attorney Michael Chua. “They need to look at their assets and decide whether to use a TODD or a trust.”
What is Todd?
A TODD is a simple document that allows real property, such as a home or land, to be transferred to a designated beneficiary upon the property owner’s death. These are easy and inexpensive to do, and all you need to do is fill out a form, sign it, and record it in the county where the property is located.
Importantly, this allows you to avoid lengthy and potentially costly probate and quickly transfer your property to your heirs.
Missouri first adopted TODD in 1989. According to NOLO.com, a legal self-help platform and publisher, more than 30 states currently offer TODD or a version of it.
Is TODD too good to be true?
Experts say TODD may be suitable for many Americans who don’t have large or complex estates.
“It’s perfect for smaller properties,” said Don Ford, an attorney with Ford & Bergner LLP. “They avoid probate and are less complex than trusts.”
Corey Krueger, managing partner at Hensley & Krueger, said simple real estate without diversified assets can also benefit. He says that if you only have a home and financial accounts (such as brokerage accounts, 401(k)s, checking accounts, savings accounts, etc.), just naming the TODD for your home and the beneficiary for your other financial accounts is enough and could save you a lot of money.
Lawyers say there is no cost to adding a beneficiary to a financial account, and setting up a TODD can cost hundreds of dollars, much less than a trust. Setting up a trust can cost thousands of dollars, plus ongoing management fees.
But TODD has some significant drawbacks, real estate lawyers said.
“TODD is a targeted measure and is only intended for transfer in case of death. It does not take into account anything else,” Chua said. For example, if the mother is alive but incapacitated, the heirs legally own nothing and have no right to manage the home.
“TODD assumes that nothing will happen to mom and dad and that if they die side by side, the house will belong to one child, so there will be no conflict,” he says.
Also, if your heirs have unpaid debts, TODD cannot protect your home from creditors. Because TODD transfers property to an individual, “the house is in that individual’s name and creditors can go after it,” Krueger said.
Who should not use TODD?
Experts say families with large estates and various assets should probably consider trusts, especially if they value flexibility. Trusts also avoid probate but allow for changes in your life.
Trusts allow you to plan for incapacity. Lawyers say they can name a successor or co-trustee to manage the trust and its assets for their benefit.
A trust can specify detailed inheritance instructions and conditions that cover situations such as multiple beneficiaries, specific percentages for each heir, or the death of a beneficiary. You can also update it to account for changes in your life situation, such as divorce, marriage, or childbirth.
Essentially, “TODD is a surgical tool for the very specific purpose of avoiding probate, but it’s not very useful outside of that,” Chua said. “Trusts are a whole toolbox that can address many issues that can arise.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
