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Transfer on Death Instruments to Avoid probate on Your Residence
Many families set up living trusts to make sure their residence does not have to go through probate on their death. Other methods also exist to avoid probate of the residence, but some of them have drawbacks. For example, some clients put the title of their home into joint tenancy with an adult child. This arrangement will avoid probate at the owner's death. But since joint tenancy is a lifetime transfer, the new joint tenant becomes a current owner of the property. If he has financial difficulties and winds up with a money judgment against him, his creditor can seek to attach and sell the residence to satisfy the judgment. Only you can determine whether this is a risk you are willing to bear.
Another way to avoid probate on a residence at death is to record a Transfer on Death Instrument ("TODI.") This is not a lifetime transfer - no one owns your property but you during your life. At your death, however, the title transfers automatically to your named beneficiary.
TODI Fundamentals:
TODIs became authorized in Illinois in January, 2012.
A TODI can transfer only "residential real estate," which is: real property with one to four residential dwelling units; units in residential cooperatives; condominium units; or a single tract of agricultural real estate of 40 acres or less which includes a single family residence.
TODIs cannot be irrevocable. This allows for flexibility in the estate plan. A TODI instrument is revocable at any time prior to the owner's death. Just as a TODI must be recorded to be effective, a revocation of a TODI must also be recorded. While a TODI is not actually revoked by a deed, as on the sale of the property, such a deed would prevent the TODI from being operative because the property is not owned by the transferor at death.
The transfer under the TODI is triggered by the owner's death, therefore, only a natural person can create a TODI. However, a "beneficiary" can be a natural person or any legal entity capable of owning residential real estate, including a trust, corporation, limited liability company or governmental entity. This could accomplish a charitable gift at death.
If a designated beneficiary fails to survive the owner, the transfer lapses and the property passes to the probate estate of the owner, unless the TODI provides otherwise. Naming a successor beneficiary would prevent this.
To execute or revoke a TODI, an owner must have the same mental capacity as is required to make or revoke a Will. A testator (person making a Will) must have sufficient mental ability to:
1. Know and remember the "natural objects of her bounty." Even if she chooses to leave her assets to her kind neighbor, she must understand that she has children or other family members and they normally receive a person's estate.
2. Comprehend the kind and character of her property. A person must still understand that he is wealthy, or not very rich, and that he has a house and bank accounts, etc.
3. Make disposition of her property according to some plan formed in her mind. A testator must make her own decision about who will inherit her assets and not just agree with a plan worded by a family member.
Unless expressly authorized by a power of attorney or similar instrument, an owner's agent cannot create or revoke a TODI on behalf of the owner. If this is an idea that makes sense for a family member, get it done while they have the capacity to execute it.
The TODI must be recorded before the owner's death in each county where any part of the residential real estate is located.
A recorded TODI does not affect the right of an owner or agent to sell the residential real estate during the owner's lifetime. A TODI also does not affect the rights of the owner's creditors and lien holders (e.g., the mortgage company.)
When someone uses a TODI to avoid probate on the residence, usually this estate plan also includes a Will and Powers of Attorney for Health Care and Property. The POA for Property will let someone step in and manage the person's assets, including the residence, for their benefit should they become disabled. The TODI does not accomplish that - and that is one reason why some families still choose to use a living trust.
While a TODI is less expensive to have prepared than a living trust, if a family has several real estate assets, it can become more expensive in total to use TODIs than a living trust, which can hold unlimited assets. Also, remember, only residential real estate can be transferred by TODI.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
Transfer on Death Instruments to Avoid probate on Your Residence
Many families set up living trusts to make sure their residence does not have to go through probate on their death. Other methods also exist to avoid probate of the residence, but some of them have drawbacks. For example, some clients put the title of their home into joint tenancy with an adult child. This arrangement will avoid probate at the owner's death. But since joint tenancy is a lifetime transfer, the new joint tenant becomes a current owner of the property. If he has financial difficulties and winds up with a money judgment against him, his creditor can seek to attach and sell the residence to satisfy the judgment. Only you can determine whether this is a risk you are willing to bear.
Another way to avoid probate on a residence at death is to record a Transfer on Death Instrument ("TODI.") This is not a lifetime transfer - no one owns your property but you during your life. At your death, however, the title transfers automatically to your named beneficiary.
TODI Fundamentals:
TODIs became authorized in Illinois in January, 2012.
A TODI can transfer only "residential real estate," which is: real property with one to four residential dwelling units; units in residential cooperatives; condominium units; or a single tract of agricultural real estate of 40 acres or less which includes a single family residence.
TODIs cannot be irrevocable. This allows for flexibility in the estate plan. A TODI instrument is revocable at any time prior to the owner's death. Just as a TODI must be recorded to be effective, a revocation of a TODI must also be recorded. While a TODI is not actually revoked by a deed, as on the sale of the property, such a deed would prevent the TODI from being operative because the property is not owned by the transferor at death.
The transfer under the TODI is triggered by the owner's death, therefore, only a natural person can create a TODI. However, a "beneficiary" can be a natural person or any legal entity capable of owning residential real estate, including a trust, corporation, limited liability company or governmental entity. This could accomplish a charitable gift at death.
If a designated beneficiary fails to survive the owner, the transfer lapses and the property passes to the probate estate of the owner, unless the TODI provides otherwise. Naming a successor beneficiary would prevent this.
To execute or revoke a TODI, an owner must have the same mental capacity as is required to make or revoke a Will. A testator (person making a Will) must have sufficient mental ability to:
1. Know and remember the "natural objects of her bounty." Even if she chooses to leave her assets to her kind neighbor, she must understand that she has children or other family members and they normally receive a person's estate.
2. Comprehend the kind and character of her property. A person must still understand that he is wealthy, or not very rich, and that he has a house and bank accounts, etc.
3. Make disposition of her property according to some plan formed in her mind. A testator must make her own decision about who will inherit her assets and not just agree with a plan worded by a family member.
Unless expressly authorized by a power of attorney or similar instrument, an owner's agent cannot create or revoke a TODI on behalf of the owner. If this is an idea that makes sense for a family member, get it done while they have the capacity to execute it.
The TODI must be recorded before the owner's death in each county where any part of the residential real estate is located.
A recorded TODI does not affect the right of an owner or agent to sell the residential real estate during the owner's lifetime. A TODI also does not affect the rights of the owner's creditors and lien holders (e.g., the mortgage company.)
When someone uses a TODI to avoid probate on the residence, usually this estate plan also includes a Will and Powers of Attorney for Health Care and Property. The POA for Property will let someone step in and manage the person's assets, including the residence, for their benefit should they become disabled. The TODI does not accomplish that - and that is one reason why some families still choose to use a living trust.
While a TODI is less expensive to have prepared than a living trust, if a family has several real estate assets, it can become more expensive in total to use TODIs than a living trust, which can hold unlimited assets. Also, remember, only residential real estate can be transferred by TODI.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
