Older Americans own a third of US homes. How should they pass them on?

The oldest Americans still own more than a third of homes in the U.S., but they need to face their mortality and figure out soon how they plan to transfer their properties to their heirs, experts said.

Boomers and older are just 18% of the U.S. population, but control a staggering 34.1% of the housing stock value – 29.6 million homes and $13.8 trillion in total housing value, according to a census data analysis from the National Association of Home Builders (NAHB). 

With so much at stake, estate planning experts are urging seniors to carefully consider what the most efficient way will be to hand over what's often their largest and most valuable asset to heirs. Over the past several decades, Transfer on Death Deeds (TODDs) have gained popularity for their simplicity and low cost, but they're not available to everyone, depending on where you live. Plus, since estate planning is always highly individualized, TODDs may not be right for everyone, experts said.

"Every family is different," said Michael Chuah, Los Angeles-based attorney. "They need to look at their assets to make the decision of whether to use a TODD or trust."

What is a TODD?

A TODD is a simple document that allows real property, such as homes or land, to transfer to designated beneficiaries upon the death of the property owner. They are simple and inexpensive to execute, only requiring a form to be completed, signed and recorded with the county where the property is located.

Importantly, they allow property to avoid potentially long and costly probate and transfer quickly to heirs.

Missouri first adopted TODDs in 1989. Now, more than 30 states offer them or a version of them, according to NOLO.com, a legal self-help platform and publisher.

Are TODDs too good to be true?

TODDs can be appropriate for many Americans who don't have large, complicated estates, experts said.

"They're best used for smaller estates," said Don Ford, attorney Ford + Bergner LLP. "They avoid probate and are not as complicated as trusts."

Simple estates that don't have a wide variety of assets can benefit, too, said Cory Krueger, managing partner of Hensley & Krueger. If someone only owns a home and financial accounts such as a brokerage account, 401(k), checking and savings accounts, a TODD for the home and naming beneficiaries on the other financial accounts could suffice and save people a lot of money, he said.

Adding beneficiaries to financial accounts doesn't cost anything, and setting up a TODD can cost hundreds of dollars, much less than a trust, attorneys said. Establishing a trust can cost thousands of dollars plus possible ongoing administration fees.

However, TODDs do have some serious drawbacks, estate lawyers said.

"A TODD is a targeted instrument, just for a transfer at death. It does not take care of other things," Chuah said. For example, if mom's alive but incapacitated, the heir legally owns nothing and has zero rights to manage the house.

"A TODD assumes nothing happens to mom and dad, they die in line, and then the house goes to one kid so there are no conflicts," he said.

A TODD also doesn't protect the home from creditors if the heir has unpaid debts. Since a TODD transfers property to an individual, "the house is in that individual's name and creditors can come after it," Krueger said.

Who shouldn't use a TODD?

Families with large estates and a wide variety of assets should probably consider a trust, especially if they value flexibility, experts said. Trusts also avoid probate but allow for life changes.

A trust allows you to plan for incapacity. You can name a successor or co-trustee to manage the trust and its assets for your benefit, lawyers said.

Trusts allow for detailed instructions and conditions for inheritances, covering circumstances like multiple beneficiaries, specific percentages for each heir or the death of a beneficiary. They also can be updated to account for changes in life circumstances, such as a divorce, marriage or birth.

Basically, "a TODD is a surgical tool for a very specific purpose, to avoid probate, but it's not doing much else," Chuah said. "A trust is a whole tool box" that can handle many issues that may arise.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday