Study: Transfer on Death Deeds key to generational wealth

Published on November 28, 2023

Overview: 

A study conducted by the Home Institute for Housing Studies (DePaul University) published November 28, 2023, found Transfer on Death Instruments (legal in IL since 2012) reduced Tangled Titles. Tangled Titles prevent the creation of generational wealth, and cause neighborhoods to fall into abandonment and decay.

Highlights:

A 2021 Gallup poll found that roughly 24 percent of respondents aged 65 and older and nearly half of respondents aged 50 to 64 did not have a will. The poll also noted significant variation in the use of wills by respondent race and income with over 70 percent of non-white adults and 70 percent of lower-income adults not having a will.  (Recorder Thornton’s comment: a 2024 study conducted by the AARP produced virtually identical results)

Trusts can be expensive, as the process requires legal counsel, maintenance fees, and filing fees. Trusts are also usually more difficult to revoke if the owner seeks to make any changes. Another approach to avoid probate is to hold a property in joint tenancy with rights of survivorship. Joint tenancy adds the heirs’ names to the existing property title, making them co-owners of the property. While this approach also avoids probate, it introduces other complexities; for example, the added titleholders would have equal ownership rights to the existing owner, even before the original owner passes. Adding a joint tenant also exposes the property to potential debts of the added owners.

Without an estate planning vehicle in place, a property can end up in a tangled title scenario – a state of legal limbo where there is no clearly defined heir or owner in charge of the property. While family members can occupy a property that lacks a clear title, the absence of legal ownership means that no one has clear decision-making authority for the property.

• Occupants are unable to access existing home equity;
• can’t invest in the property; can’t access certain home improvement grants that require proof of ownership;
• can’t sell the home to a new owner.
• If multiple heirs attempt to claim a property, the dispute may need to be resolved in court, which makes the process more costly and time-consuming.

• While these types of scenarios are being resolved, a property’s condition can deteriorate or even contribute to neighborhood disinvestment.
• A property that remains unoccupied during this process can degrade during the waiting period without a clear owner to take responsibility for maintenance. This process can reduce the value of the property and make it more difficult and expensive for an heir or a new owner to rehabilitate it once they take possession.
• Vacant houses can have negative effects on a neighborhood, and, in some areas, properties without clear heirs make up a significant number of vacant homes in some communities.
• These conditions can contribute to
  • challenges related to vacancies,
  • diminish local tax bases,
  • reduce neighborhood property values,
  • limit the overall available housing supply.

In addition, research from cities such as Philadelphia, Atlanta, and St. Louis has highlighted how problems associated with a lack of clear property ownership have disproportionately affected predominantly Black communities and perpetuated the impact of discriminatory housing policies on these neighborhoods.

Although TODIs are generally simpler and more accessible than trusts or wills, older adults may still need additional support when navigating the drafting and recording process. Local legal aid agencies provide support and free-of-cost services to low-income residents who are either elderly or who have permanent disabilities.

Between 2012 and 2022, nearly 30,000 TODIs were filed on residential properties in Cook County. 

A key benefit of TODIs is their relative affordability compared to other estate planning tools.  Older adult homeowners in low- and moderate-income neighborhoods are more likely to use TODIs than those in other neighborhoods

Black communities have a complex and troubled history of tangled titles. Therefore, these neighborhoods are frequently the focus of efforts to raise awareness of TODIs and to provide legal support for older adult homeowners interested in filing TODIs. Data indicate that these efforts have in many ways been successful.

TODIs are a useful, cost-effective tool to simplify the estate planning process for lower-income homeowners and ensure that their properties don’t end up in tangled title situations.

Data show steady growth in the use of TODIs since 2012, and TODI-filing activity is most common among older adults, particularly those in low- and moderate-income communities and Black communities.

Despite encouraging trends and patterns of TODI-filing activity, levels of TODI-filing lag in majority Latino communities.

Overall, residential parcels with a TODI still represent a relatively small share of total parcels, indicating opportunities and a need for ongoing outreach

TODIs are a legal tool that can support broader policy goals such as promoting the transfer of generational wealth and preventing property deterioration, vacancy, and abandonment, but there are limitations to what TODIs can accomplish by themselves:

• Property conditions or other factors may limit an heir’s interest in taking ownership or responsibility for a property.
• Heirs may want the home but have no experience as a homeowner.
• Grantor must not only identify an heir interested in assuming ownership of the property, but also ensure they have access to financial and logistic resources needed to be a successful homeowner.
• Issues such as beneficiaries not living in the area, not having the financial resources to maintain the home, or facing health challenges of their own may complicate the use of TODIs as a succession planning tool.
• properties may have experienced years of deferred maintenance and require additional investment to maximize the value and livability of the property. In these situations, existing owners and heirs may benefit from homeownership training, housing counseling, and specialized financial products to support the successful transition of the home to a future generation.
• (Recorder Thornton’s comments: These are the same issues that will occur if property is left by will or trust, or by law if no will.  NOT unique to TODD.)