By: Brad McCann
The Illinois Residential Real Property Transfer Act (755 ILCS 27/1, et seq.) (the “Act”) provides for an owner, or co-owners, to transfer Illinois residential real estate to one or more designated beneficiaries at the death of the owner, or, if there are more than one owner, at the death of the surviving owner. This post-death transfer is done by preparing and recording a Transfer on Death Instrument (“TOD Instrument”) during the owner’s life. The TOD Instrument is recorded with the county where the residential real estate is located; however, the TOD Instrument does not become effective until the death of the owner (or, if there are more than one owner, upon the death of the last owner to die). The operation and effectiveness of the TOD Instrument is similar to a payable or transfer on death designation available for bank accounts. The TOD Instrument is very useful especially where an owner does not have a revocable trust but still does not want the heirs to go through probate.
One of the limitations in the original Act is that it can only relate to residential real property and was not available for commercial real property. Effective January 1, 2022, an amendment to the Act (“Amendment”) provides that the TOD Instrument will no longer be limited to only residential real estate, but may be used for any real estate located in Illinois. The Act has been renamed the “Real property Transfer on Death Instrument Act”. This allows an owner of a commercial building to use a TOD Instrument to avoid probate at death.
The Amendment also clarifies some outstanding issues of concern under the prior Act. One of those clarifications is that the beneficiary of a TOD Instrument may be a trust that is in existence at the time the TOD Instrument is signed, that is created under the owner’s Will or under the TOD Instrument itself, or that is created under the Will of someone else who had predeceased the owner even if the trust is revocable or amendable.
The Amendment provides some technical clarifications: (i) the TOD Instrument does not have to state that any consideration was given to the owner in return for executing the TOD Instrument, (ii) the addresses of the beneficiaries are not required to be included in the TOD Instrument, and (iii) the TOD Instrument must be notarized and witnessed by two credible witnesses and recorded prior to the owner’ death. Failure of these procedures will make the TOD Instrument void.
The Amendment also provides a new section related to renunciation of a TOD Instrument by a surviving spouse. If the spouse renounces a TOD Instrument, it is treated the same way was a renunciation of a Will as provided in the Probate Act. In order to renounce a TOD Instrument, the spouse must record a written renunciation with the Recorder’s Office where the TOD Instrument is recorded within seven months after the owner’s death. In addition, a beneficiary under a TOD Instrument is subject to the same claims of creditors of the owner(s) as someone who would take under a revocable trust. Such property is subject to the claims the owner’s creditors, costs of administration of the owner’s estate, expenses of owner’s funeral and disposal of remains, and statutory allowances to a surviving spouse and children to the extent the owner’s probate estate is not sufficient to pay those amounts.
The Amendment also provides that similar rules for contesting a Will apply to contesting a TOD Instrument: two years to contest the TOD Instrument, unless a probate is opened, which would cut the claim period to six months.
The Act required a lawyer draft the TOD Instrument, which was retained in the Amendment, but it eliminated the requirement that the attorney be licensed in Illinois. However, notwithstanding an attorney being required to draft the instrument, the owner of real property can draft his or her own TOD Instrument without it being void.
If you would like more information on how a Transfer on Death Instrument, with the new Amendment, can avoid probate by providing designated beneficiaries the ownership of residential and commercial real estate upon your death, please contact Bradley S. McCann.