When Leaving the House to Your Heirs Backfires

Americans have trillions of dollars of wealth locked up in their homes, and passing it on at death can get messy quickly. The typical way of outlining who should get the house in a will can cause delays after death—so much so that most states have set up a new way for homeowners to document their wishes. It is called a transfer on death deed, and it has taken off in the past 15 years. New York and New Hampshire added the option last year.

These are blunt instruments, however, and they don’t account for all the complications of life. People make mistakes filling out the forms. Heirs get cut out inadvertently. The overall estate plan can conflict with the deed. And then it can go really wrong.

More people are having to decide whether to sell a home that has soared in value and pay a big capital-gains tax bill, or hold on to it to give to their children tax-free after they die. Baby boomer homeowners hold $17 trillion in home equity. Three-quarters of them are planning to leave their current home or the proceeds from its sale to their children or other relatives, according to Freddie Mac.

Traditionally, people with wealth write a will to outline what they want to happen with their property when they die. After death, a court then supervises the transfer of assets, a process known as probate that can be time-consuming and expensive. To avoid probate, some people will set up a trust, and put their home and other assets in it, with detailed instructions for the trustee. But trusts, whereby the trustee distributes assets at death without court involvement, require attention to make sure assets are titled properly.

Transfer on death deeds were created as a no-fuss option to avoid probate. It is akin to listing a beneficiary on a 401(k) or on a payable-on-death form for a brokerage account. When the homeowner dies, the beneficiary named on the deed gets the house right away.

For more information see Ashlea Ebeling “When Leaving the House to Your Heirs Backfires,” The Wall Street Journal, May 10, 2025. 

Special thanks to Naomi Cahn (University of Virginia School of Law) for bringing this article to my attention.