Illinois Residential Real Estate Transfer on Death Act Changes Make Significant Changes | Thompson Coburn LLP
On July 9, 2021, Governor Pritzker signed a bill to amend the Illinois Residential Real Estate Transfer on Death Act (the “Act”), which came into effect on January 1, 2022. This law has allowed people who own residential real estate in Illinois to name a beneficiary. of the building by means of an act of transfer on death (“TODI”), thus avoiding the approval of the building on death. This can be very useful especially in a situation where the owner does not have a revocable trust but does not want to submit his heirs for probate.
The amendments to the Act bring about significant changes. Most significantly, a TODI will no longer be limited to residential real estate. It can now be used for any property located in Illinois. (The law will now be called the “Instrument of Transfer of Real Property on Death Act.”) For example, an owner of a commercial building can also use a TODI to avoid probate on death. Please note that under the amendments an owner does not include a trustee or other person acting as a trustee, representative or agency.
The amendments clarify that the beneficiary of a TODI can be a trust that exists when the TODI is signed, that is created under the owner’s will or the TODI itself, or that is created under someone’s will. ‘another who has died before the owner even if this trust is revocable or modifiable. Some practitioners worried that this was not possible under the law. If the beneficiary trust is subsequently changed, the changed terms control the disposition of the real estate.
The amendments clarify that the TODI does not have to indicate that consideration was given to the owner in exchange for the performance of the TODI. Addresses of beneficiaries do not need to be included in the TODI either. The TODI must be notarized and attested by two credible witnesses and registered before the death of the owner. Failure to comply with these procedures will invalidate the TODI. As with a will, witnesses should not be beneficiaries under TODI.
The changes add a new section relating to a possible waiver of TODI by a surviving spouse. If the spouse renounces the TODI, this is assimilated to a renunciation of a will. The spouse is entitled to one third of the immovable property if the owner has also left a descendant or to half if there is no descendant. To make a waiver, the spouse must file a written waiver at the same registry as the TODI was registered within seven months of the owner’s death. The rest of the real estate passes under the TODI as if the spouse had died before the owner, unless otherwise specified in the TODI.
A beneficiary under a TODI is subject to the same claims from the owner’s creditors as someone who would take under a revocable trust. Under Section 505 of the Illinois Trust Code, property in a trust that is revocable on the death of the settlor is generally subject to the claims of the settlor’s creditors, at the expense of administering the settlor’s estate, to the expenses of the funeral of the grantor and the disposal of the remains, and the statutory allowances to the surviving spouse and to the children insofar as the inheritance of the grantor is insufficient to satisfy these claims, costs, expenses and allowances.
The amendments clarify that similar rules for contesting wills apply to contesting a TODI. An individual has two years to challenge the TODI unless a probate succession has been opened. In this case, the time limit is reduced to six months after the issuance of the letters of office to the executor.
Finally, the changes maintain the requirement that a lawyer write the TODI, but remove the requirement that a lawyer be licensed to practice in Illinois. However, a building owner can write their own TODI, and this will not void the transfer.
In situations where an individual has a revocable trust, transferring real estate ownership to the trust may be a better solution than using a TODI. If an owner of real estate uses a TODI and becomes disabled, the owner will still need a financial power of attorney so that someone can make decisions relating to the property. Although powers of attorney should be respected, there are still many situations in which a third party is reluctant to use one. A trust eliminates this problem. However, in many situations, a TODI can be a useful and cost effective tool in the estate planning process.