Friday, September 26, 2014

Probate II: A Tool to Avoid Probate Becomes Even More User Friendly

by David McCarthy

One of the many probate-avoidance devices available in Illinois has just been amended to make it easier for homeowners to transfer ownership of the home without going through probate.

 The Illinois Residential Real Property Transfer on Death Instrument Act (755 ILCS 27/1 et seq.) permits residential real estate to be conveyed outside probate by the use of a document that blends the features of a deed and the features of a will and is known as a transfer-on-death-instrument ("TODI").

The amendment, which became effective on August 1, 2014, made a transfer simpler and easier in at least two ways. It eliminated an inference that the beneficiary must accept the transfer during the owner's life time in order for the transfer to take effect. It also altered the nature of the so-called notice of death affidavit. The recording of that document is now required in order for the beneficiary to confirm his or her title to the property where before it was required to perfect title. Failure to record the document is still risky and could be fatal. If it is not recorded within 30 days of the death of the owner, the personal representative of the estate of the owner may take possession of the property, assert control over it, and gain rights to reimbursement and to lien the property; and if the document is not recorded within two years of the death of the owner, the TODI will become void and ineffective.

The amendment also imparted some protection to the so-called BFP -- bona fide purchaser for value: Persons, groups, and organizations who acquire an ownership or mortgage interest in the property for value and without notice before the recording of a lis pendens for an action to set aside or challenge a TODI, take free of the contest.

The amendment also removed the authority of agents acting under a durable power of attorney from creating or revoking a TODI.

The TODI is a handy item in the probate-avoidance tool box, alongside living trusts, the use of joint tenancies, and the small-estate affidavit. Picture this: A married couple raised their family in a house they owned as tenants by the entireties. One of them dies. That would terminate the tenancy, and the house would become part of the probate estate of the survivor unless it is put in a trust or sold. The survivor wants to stay in the house and does not have a trust. And but for the house, the probate estate would be modest enough to qualify for treatment under the small estate affidavit provisions of the Probate Act. That is not a far-fetched hypothetical. And the TODI is an almost perfect solution to the problem.