How to transfer a house after death

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Many METARs own our homes. There are many tricky issues involved in how to transfer ownership of a home after death.

https://www.wsj.com/personal-finance/house-inheritance-transfer-on-death-deed-aa10fc82?mod=wknd_pos1

When Leaving the House to Your Heirs Backfires

Home equity has ballooned in recent years, but people who use a new way to pass it on can run into trouble

By Ashlea Ebeling, The Wall Street Journal, May 10, 2025

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…

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… [end quote]

Every single strategy for transferring real estate has its own potential pitfalls and requires careful thought (and maybe consultation with a lawyer). Pitfalls can include probate contests, unfair distributions and higher taxes.

Here are some approaches to transfer.

  1. Ignore the issue. Heck, while you’re at it, ignore the whole issue of death and die intestate. This guarantees a mess since you wouldn’t even have an appointed executor to start probate.

  2. Write a will. Distribute the property to your selected heir. In most (maybe all?) states the estate would pay a death tax (federal and state) but the heir inherits tax-free. This provides a step-up valuation for the home and all other financial assets, potentially avoiding huge taxes on highly appreciated properties. The disadvantage to a will is that the property goes through probate. Probate can take a long time and can be contentious.

  3. Title the house as “Transfer on Death.” This avoids probate but may trigger an estate tax, depending which state the house is in. The article describes several potential pitfalls of TOD.

  4. Title the house in a Revocable Living Trust. Upon the grantor’s death, the home typically receives a step-up in basis to the fair market value on the date of death. This means that if the heirs later sell the home, they will likely pay little or no capital gains tax (if sold shortly after death). The Revocable Living Trust is the best place to title a home since it can give the authority to manage the home expenses in the event that the grantor is (temporarily or permanently) unable to manage. My home is in my Revocable Living Trust to enable DH to live in it for his lifetime but not to transfer it to a subsequent wife when he dies – it would transfer to my sister.

Some areas of the country have seen enormous increases in home values.
When selling a primary residence, the IRS provides a capital gains tax exclusion under Section 121 of the Internal Revenue Code. The amount you can exclude depends on your filing status and specific circumstances.

Capital Gains Tax Exclusion Amounts

  • Single Filers: You may exclude up to $250,000 of capital gains.Northern Law+3ElderLawAnswers+3Intuit TurboTax Community+3

  • Married Filing Jointly: You may exclude up to $500,000 of capital gains.

  • Widowed Individuals:

    • If you sell your home within two years of your spouse’s death and have not remarried, you may still qualify for the $500,000 exclusion, provided you meet the ownership and use tests.
    • If you sell the home after two years or remarry before the sale, the exclusion typically reverts to $250,000 unless you qualify for the higher exclusion with your new spouse.Northern Law+5

Wendy

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My father had TOD on his house and both vehicles. My sister and myself were the benefactors. Fortunately, I closed the sale of his house 3 days before he died. I was dad’s DPOA. I don’t know how well the TOD would have worked on the real estate. I sold his pickup several months earlier so again the TOD wasn’t implemented.

However his car did trigger the TOD. Several months earlier my sister and I had agreed that she would take possession of the car, so I removed my name from the TOD section of the car title. When dad passed, I shipped the car to her in North Carolina. She had quite a bit of trouble when she went to DMV in N.C. Evidently they don’t recognize TOD and was insistent that I needed to sign off on the title, or something like that. She fought with them for several days and had to go up the chain of command before they finally relented.

Just my experience with TOD.

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