After a lifetime of building wealth, how can you ensure that your most important assets are passed down according to your wishes? Whether you’re a new homeowner or you have several decades in your “Forever Home” under your belt, it’s never too early to start thinking about estate planning for your home, financial accounts, and other assets.
The choices you make now could mean all the difference for your friends and family when you’re no longer around, helping to ensure that your most treasured assets are distributed quickly, fairly, and in full accordance with your wishes.
When it comes to residential real estate? Factoring your home into your estate plan can help make sure that your family always has somewhere to live, or could give your relatives a big jump start when it comes to securing their own financial future.
For homeowners, there are several ways to help decide who will assume ownership of your residential real estate when you pass away – from establishing a living trust, to adding a designation in your will, to holding title as joint tenants with rights of survivorship or tenants by the entirety. Deciding on the right estate method for you will depend on your unique circumstances, wishes, and goals. For instance, many homeowners want their property to be transferred outside of probate, in order to avoid a process that can be complex and time-consuming.
As you look into ways to transfer real property outside of probate, you might find yourself coming across a common acronym – TODI. Short for “Transfer on Death Instrument,” TODI is a way for homeowners to transfer residential real estate while bypassing probate. Though it is a fairly straightforward method for transferring property, TODI is often misunderstood – and certainly comes with its own unique set of challenges and advantages to consider.
Let’s explore the Transfer on Death Instrument, and how it works in Illinois:
What Is the Transfer on Death Instrument, or TODI?
TOD (“Transfer on Death”) designations are incredibly common for financial accounts, retirement funds, and securities. In short, this designation allows the account holder’s chosen beneficiaries to receive these assets at the time of the account holder’s death, without having to go through probate.
The same principle applies when using the Transfer on Death Instrument, TODI, in real estate. This instrument was put into practice here in Illinois within the last ten years, and is authorized by the Illinois Residential Real Property Transfer on Death Instrument Act (text available here).; The mechanism is also used in other states around the country, though specific laws and practices vary from state to state.
In short, the TODI allows Illinois owners to transfer their residential real estate outside of probate, using a prerecorded instrument. At the time of the owner’s death, the property transfers to the designated beneficiary. A TODI is revocable, and can be altered or revoked at any point during the owner’s lifetime. Similarly, the TODI does not grant the beneficiary any rights or interest to the asset during the owner’s lifetime. It does not impact the owner’s ability to sell the property, and does not affect the rights of the owner’s creditors and lien holders. In that same vein, it’s important to note that the beneficiary of the TODI assumes responsibility for all liens and interests that the residence is subject to at the time of the owner’s death, including conveyances, encumbrances, assignments, contracts, options, and mortgages.
How Does the TODI Work? A Broad Overview of the “Transfer on Death” Process
In order to create a TODI, the owner of the residential real estate must create a document containing the essential elements and formalities of a properly recordable inter vivos deed, and be witnessed as such – that is, in the presence of two witnesses and a notary. The TODI must state that the transfer to the designated beneficiary will occur at the owner’s death, and be recorded in the public records prior to the owner’s death. The revocation of a TODI must be recorded, as well, and may be done via an instrument of revocation, or a second TODI that revokes the previous TODI expressly, or by inconsistency.
In order to take ownership of the property after the original owner’s death, the beneficiary must accept the TODI. They may also opt to disclaim the transfer; in this case, it will pass to an alternate beneficiary. If the beneficiary named in the TODI fails to accept within two years of the owner’s death, the instrument is considered void and ineffective. The designated beneficiary may be an individual, or any legal entity capable of owning residential real estate, such as a corporation or LLC.
A TODI can be implemented along with other forms of estate protection. Most notably, a TODI can be executed by joint owners, such as joint tenants with right of survivorship or tenants by the entirety- though special rules do apply. Joint owners can execute a TODI singly or jointly, without impacting the joint tenancy or tenancy by the entirety. However, if all of the joint owners execute the TODI, all of the living owners must agree to revoke it. Ultimately, in this case, the TODI is revocable down to the last surviving joint owner.
There Is More to Discuss
Have any more questions about the Transfer on Death Instrument here in Illinois? Curious about how it compares to creating a living trust or designating a beneficiary in a will? Interested in talking about a strategy tailored to your unique circumstances and goals?
In many cases, an experienced real estate attorney can be an invaluable resource, helping you to complete your paperwork and go through every detail in the present, in order to help set up your long-term financial future – including managing estate transitions for the sake of yourself and your loved ones.
Don’t hesitate to get in touch with the attorneys and staff of the Gunderson Law Firm to keep the discussion going.
At the Gunderson Law Firm, our experienced team handles many different aspects of real estate law, including purchases and sales, exchanges, mortgage conveyancing and advice, asset protection planning, trusts, wills, estate planning, and much more.
The Gunderson Law Firm possesses the expertise and insight necessary to help you find effective solutions tailored to your unique needs – all reinforced by years of experience and long-term connections throughout Chicago’s real estate, title, finance, and insurance industries. Drop us a line whenever you’re ready to learn more or schedule your free initial consultation.