Note: This Blog Article has been revised and republished to reflect the new rules regarding the Illinois TODI that went into effect on January 1, 2022.
On January 1, 2012, the State of Illinois created a way for Illinois residents to transfer ownership of their home through a document called a Transfer on Death Instrument (TODI) - pronounced "Toad-y". The original TODI Statute was limited to “Residential” real estate only.
This original TODI Statute allowed people to name beneficiaries for their residential home and this helped avoid probate for many estates.
Ten years later, on January 1, 2022, significant changes were made to the old TODI Statute that both clarified and expanded the previous law.
In short, the 2022 update to the TODI Statute now allows people to name beneficiaries for any type of real estate that they own in Illinois – the TODI is no longer limited to just “residential real estate.”
This opens up the TODI as an estate planning tool for people that own farmland, commercial real estate or second homes in Illinois.
Below is a Q&A to further explain what a TODI is, how it works with the new updated Illinois TODI Statute, and whether this is something you should use with your Estate Plan.
1. Question: What is a TODI?
Answer: In simplest terms, a TODI is a document that can be recorded while someone is alive that allows the real estate that they own – whether it is residential or commercial real estate – to be transferred to named beneficiaries in the TODI document upon the real estate owner's death.
2. Question: Why would someone need or want to have a TODI?
Answer: The main reason someone would consider using a TODI is so their real estate can avoid having to go through probate when they die. If real estate is owned by a single individual at the time of their death, that property is generally considered a "probate asset" which requires a probate court process for a judge to determine who receives the property, whether the legatees of a person's Will or by Illinois law (if there is no Will.)
Illinois Probate takes about a year to complete - IF there are no complications. Using a TODI to name beneficiaries for your real estate means that your real estate is transferred to who you name in the TODI document without having to go through Probate.
3. Question: What is Probate?
Answer: Probate is a court proceeding that allows assets of someone who died to be transferred to their heirs. Probate itself is a court proceeding that takes up to one year or longer to complete - if there are no complications.
Probate is a public proceeding and generally requires an attorney to represent the estate, making sure everything is done right. Most people want to avoid the costly Probate court and legal fees, plus the time delay associated with probate court.
4. Question: How does a TODI work to avoid Probate?
Answer: A TODI is a document that is a mix between a deed and a will. The TODI contains the legal description of the real estate being transferred (like a Deed). The TODI must be notarized when signed (like a Deed) and also must be witnessed by two witnesses while being signed (like a Will in Illinois). Once the TODI is signed by all of the owners and is properly witnessed and notarized, then it must be recorded in the County where the Property is located. The TODI designates who should inherit the Property when the owner dies.
If there are joint owners, then the property passes to the beneficiaries of the TODI when the second joint owner dies. The beneficiaries don't have to do anything in order to accept the Property upon the owner's death - they automatically inherit the Property; however, the beneficiaries do have the right to reject the ownership of the Property within a certain amount of time of the owner's death.
5. Question: How does an owner revoke a TODI that they previously signed and recorded.
Answer: An owner can revoke a TODI prior to their passing by taking the following these 3 steps:
Step 1 - Have a written document prepared that specifically revokes the previously recorded TODI. ("Revocation Document")
Step 2 - The Revocation Document is properly signed, witnessed and notarized (signed in front of two witnesses and a notary).
Step 3 - The Revocation Document is recorded prior to the owner's death. Note that the Revocation is not effective until it is recorded.
6. Question: How does joint ownership of real estate effect the validity or revocation of a TODI?
Answer: If all of the joint owners properly sign a TODI and that TODI is recorded, then it takes all of the living joint owners to sign and record a document revoking the TODI.
If less than all of the joint owners properly sign and record a TODI, the TODI will then be governed by the designation of the joint owner who is the last to do of all joint owners. If the last to die joint owner did not execute the TODI the designation then the TODI signed by a prior deceased joint owner is ineffective.
7. Question: How do I know if a TODI is right for my estate plan?
Answer: A TODI can be a simple and effective way to avoid probate without needing a trust. Now that the TODI can be used beyond just “residential” real estate -- its use and applications is expanded to owners of farmland and commercial real estate; HOWEVER, everyone's estate planning needs are different. A TODI may not be a good fit for everyone.
A PROPER Estate Plan requires a complete evaluation of an estate to determine if a simple TODI would be appropriate to transfer real estate upon an owner’s death or if a Trust is needed to transfer and control real estate at (and after) the owner’s death.
If you have more questions and want to discuss your Estate Plan, give us a call at 309-662-7000.
This article is a service of Attorney Chad A. Ritchie and the Ritchie Law Office, Ltd.
Click Here or call (309) 662-7000 to learn more about Ritchie Law Office, Ltd. and our Estate Planning process, which starts with an initial consultation called our “Ritchie Legacy Planning Session”.
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