Monday, January 2, 2012

New in 2012 - Illinois' Residential Real Estate Transfer on Death Instrument Act

Now that the calendar has turned over to 2012, the new Illinois Residential Real Property Transfer on Death Instrument (TODI) Act, 755 ILCS 27/1 et. seq, (the "Act") has taken effect.  The Act gives Illinois residential property owners a new and useful estate planning tool.

What is a TODI?  A TODI is similar to, but distinctive from a deed; it is recorded with the county in which the property is located while the property owner is alive, but that takes effect only upon the death of the owner, as long as certain statutory conditions are met.

Why the Act Matters - In Illinois, real property personally owned by a decedent requires a probate action, regardless of the value of the estate.  The TODI gets the property out of probate.  Trust planning can accomplish the same goal but is not typically focused on a specific property.  The TODI is a simpler, more cost-effective mechanism, more tailor-made to accomplish the goal of transferring residential real property outside of probate.

What You Need to Know - 
  1. Residential real estate under the Act includes any real property improved with 1 - 4 residential dwelling units, condominium units including limited common elements allocated to their exclusive use, and a single tract of agricultural land of 40 acres or less that has a single family residence on the property.
  2. The TODI MUST be created and recorded BEFORE the death of the property owner; I know I mentioned this already, but it's critical.
  3. The TODI needs to be witnessed by two or more witnesses, like a Will, and notarized.  The witnesses should be disinterested (not family members and not named in the TODI).
  4. For jointly owned property, a TODI can be made by both owners jointly or severally.  This means, for example, that two joint tenants can execute a TODI that will take effect only when both owners die.  If only one of the joint owners executed a TODI, the TODI is effective only if that owner is the last to die. 
  5. A TODI can be revoked at any time prior to the owner's death by recording an instrument of revocation or another TODI granting the interest to someone else.  It cannot be revoked by simply destroying the document or by provision in a Will. For a jointly executed TODI on joint property, all owners who signed the TODI must sign the instrument revoking it.
  6. During the owner's life, the TODI does not affect the rights of the owner to sell or encumber the property, nor affect the rights of any secured creditor, affect the owner's eligibility for public assistance, create a legal or equitable interest for the named beneficiary.  If after signing a TODI the owner decides to sell or transfer the property, the TODI, if not revoked, becomes ineffective.  
  7. A TODI can be executed by an owner's agent holding her Power of Attorney for Property, ONLY IF the POA explicitly grants her this right.  Since the Illinois Statutory Short Form POA for Property does not name a TODI in the list of powers granted in the form, it appears to be necessary to write this additional power into the POA document.  
  8. Upon the owner's death, a "Notice of Death Affidavit and Acceptance of Transfer on Death Instrument" form must be recorded by the beneficiary to effectuate the transfer.  This form is contained in the Act itself.  
The Act contains more, important details; I cannot list them all here.  If you believe a TODI may be of value to you and your estate plan, you should read the entire statute and consult an Illinois attorney.  

I would like to credit DeKalb, Illinois attorney Charles G. Brown, for his extremely helpful article on this topic "The Transfer on Death Instrument Comes to Illinois," Illinois Bar Journal, December 2011.

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