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FAQ - What is a Transfer on Death Instrument?

The Illinois transfer on death instrument (TODI) allows an owner of residential real property to designate beneficiaries who will receive interest in the property on the last owner's death. This transfer happens outside of probate and can be done by submitting simple forms to the county recorder's office.  It is noted that the type of real property that are eligible for TODI use may increase with future changes in the law.

When making a transfer on death instrument, the owner must have the same capacity required to make a will. Any person who is 18 years or older and is of "sound mind and memory" has the capacity to make a will.

The requirements for making a transfer on death instrument are as follows:

  • The document must contain the "essential elements and formalities of a properly recordable deed," Contained in the document there must be a grantor, a grantee, a description of the property to be conveyed, language of conveyance, and a signature by the grantor. The document must be signed by two witnesses and must be notarized.
  • Further, the document must state that the transfer to the designated beneficiary occur at the last owner's death, and the document must be recorded in the county where the property is located before the owner's death. There are no changes required to the title for the property, mortgage, homeowner's insurance, etc.
  • After the death of the last titled owner, the beneficiary has a right to either accept or disclaim the transfer on death instrument. If the beneficiary chooses to accept the transfer on death instrument, the beneficiary must sign and file a "notice of death affidavit and acceptance" after the owner's death. If a notice of death affidavit and acceptance is not filed within two years after the owner's death, then the transfer on death instrument is void and ineffective and the residential real estate will pass to the owner's estate and be distributed as per the terms of the estate plan or laws of intestacy, whichever applies.

While the transfer on death instrument must be recorded before the owner's death, the interest in the real estate only transfers at the time of the owner's death. This means that the beneficiary does not have any rights to the real estate while the owner is living and the beneficiary's creditors cannot place a lien on title to the property. On the other hand, during the owner's life, the owner retains the right to sell. modify or encumber the residential real estate and the owner's creditors can claim an interest in the property, which would transfer to the beneficiary on the owner's death.

The transfer on death instrument is revocable.

Advantages and Disadvantages of a Transfer on Death Instrument

A transfer on death instrument is less complex and less costly to draft than a living trust. It is also revocable, which gives the owner flexibility to change his or her mind regarding who he or she wants to designate as the beneficiary. It allows the owner to retain a present interest in the residential real estate during the owner's life making it unnecessary to notify the title insurance company, mortgage company, etc. During the owner's lifetime, the beneficiaries have no interest in the property. The owner can do what they wish to the property during their lifetime such as sell the property, mortgage it, rent it or take out a home-equity loan.

While the transfer on death instrument is intended as a means to bypass probate when transferring an owner's residential real estate, there are obstacles to a probate-free transfer if the designated beneficiary dies before the owner. If the sole designated beneficiary does not survive the owner and is a descendant of the owner, then the residential real estate passes per stirpes to the designated beneficiary's living descendants at the time of the owner's death. However, probate cannot be avoided if the sole designated beneficiary does not survive the owner and is not a descendant of the owner; in this case, the residential real estate passes via the owner's estate. Furthermore, the owner can name more than one beneficiary. If one of the designated beneficiaries does not survive the owner, then the living beneficiaries can take the shares of the deceased beneficiary. If the deceased designated beneficiary is a descendant of the owner, then the deceased beneficiary's living descendants can take the deceased beneficiary's shares per stirpes.

In many cases, a transfer on death instrument can avoid the complexity and expenses of a living trust and the disadvantages of forming a joint tenancy or life estate.

Statutory information on the Illinois Transfer on Death Act can be found HERE.

Information on pending changes to Illinois Law as they pertain to this act can be found HERE.

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