Illinois 2015 Estate Planning Law Changes - Transfer on Death Instrument Act

This is the fourth post on changes to Illinois law for 2015 affecting estate planning.  The first covered the amended Health Care Power of Attorney act and the second addressed the amended "Small Estate Affidavit" found in the Probate Act. The third summarized the new Article IVa added to the Probate Act for 2015, on "Presumptively Void Transfers."  A fourth change to Illinois estate planning law in 2015 is that the Residential Real Property Transfer on Death Instrument Act, 755 ILCS 27/5, has been amended. 

The TODI Act was enacted in Illinois just a few years ago, but TODI statutes have been around for a while in other States.  The TODI concept is essentially to have a mechanism for transferring real property at death without probate.  Although the Probate Act provides for "small estates" to avoid probate via a Small Estate Affidavit, the definition of "small estate" hinges on the value of personal property in the estate ($100,000).  If the estate includes real property, the small estate exception would not apply and a probate filing would be required.   

Before TODI, Illinois law already provided several other options as probate alternatives, which are still available.  First, when property is owned jointly by two or more owners, titling the property in joint tenancy with right of survivorship successfully avoids probate until the last surviving joint tenant owner's death.  Second, various trusts can be used to own real estate; traditionally these might include a land trust or a revocable trust, such as a credit shelter trust. The difference with these options and TODI is that a TODI declaration does not change how the property is titled while the person is still living.  One can revoke or change a TODI, or just sell the property, while living, without the TODI beneficiary's notice or consent.  

Here are a few of the key changes made to the statute for 2015:

1. Change to expressly prohibit a POA Agent from creating or changing a TODI.  The previous statute said "unless expressly provided" in the POA.  The statute now requires the person signing their TODI to have the same capacity required to make a will.
2. The beneficiary of a TODI MAY file a "notice of death affidavit" to confirm title after the decedent's death.  This used to be a requirement, but is now optional (although potentially significant in terms of title insurance, for example).  
3. Clarifies that the TODI is effective upon the owner's death, regardless of whether the beneficiary received notice, delivery of the document, or accepted the transfer while the owner was still living.  
4. Clarifies that the beneficiary takes title to the property subject to the title conditions on the property that affected the owner, such as mortgages, liens, etc.
5. There is a possible legal action referenced in the statute to set aside or contest a TODI, which carries a statute of limitations for filing within 2 years of the owner's death or 6 months from issuance of letters of office (if probate is opened).  The amended statute confirms that a person who has purchased the property for value without notice of the contest (i.e, someone who bought the property from the TODI beneficiary in good faith) shall still take the property free and clear of such a contest.  

These changes would appear to help clarify what had been some potential gray areas in the TODI Act previously that may have prevented or hindered a TODI beneficiary's ability to get good, insurable title insurance, thus making a TODI a better tool to consider in your estate plan.  Again however, the TODI is one of several options at your disposal for addressing transfer of real estate at your death.  Which option is the best fit for you will depend on your personal situation and planning goals.

Nate Hinch is an attorney and partner at the law firm of Mueller, Reece & Hinch, LLC.  He has offices at 404 N. Hershey Road, Suite C, Bloomington, IL 61704, and 809 Detweiller Drive, Peoria, IL 61615, and can be reached by phone at (309) 827-4055 and email at nhinch@mrh-law.com.