Illinois Introduces "Transfer on Death" For Residential Real Estate (Or, "What's the Best Way to Hold Title Your House?")

Posted By Jay Kaufman || 9-Oct-2011

On first glance, it looks like the recently signed “Illinois Residential Real Property Transfer on Death Instrument Act” would only interest lawyers, title companies, and the government. In fact, this new law, which goes into effect on January 1, 2012, will allow a majority of our clients to “have their cake and eat it, too”, just by addressing how their residence title is issued.

Until now, assuming there are no estate tax considerations, we have been faced with a dilemma when planning for the asset protection of a married couple’s primary residence. We could have the residence titled in the name of one or
both spouse’s revocable trusts, avoiding probate costs, delays, and creditors. Unfortunately, doing so meant that both husband and wife had to previously surrender important asset protection against potential judgment creditors and others.

When a residence is held as “tenancy by the entireties”, a spouse’s creditors could not foreclose on the residence because of the other spouse’s interest. So, if there were a car accident with a large judgment, financial mistakes, or other circumstance, the property was at least temporarily protected for the remaining spouse.

Last year, the General Assembly tried to create a law where married clients could put property in trust AND still retain the asset protection benefit of tenancy by the entireties. But, the legislation was drafted in a way that no
attorney could understand how to accomplish it, so we were stuck without a solution.

One solution we’ve recommended for clients is to have the residence owned by an Illinois land trust, which gives them the advantages of a trust (including flexibility, private administration and reduced costs) and the asset protection of entireties property. But, this solution comes with an annual cost to a bank or trust company, so it’s not perfect. And, only one residence can have entireties protection from judgment creditors.

Now, using the new “Transfer on Death Act” provisions, we can help clients protect their property assets without the attendant cost of maintaining a land trust. We draft these provisions into the conveyance instruments, and
once they are properly recorded, they are immediately effective.

The residence can be owned by the spouses as tenants by the entireties. Upon the death of the first spouse, the survivor is instantly and automatically the owner. Upon the death of that surviving spouse, the property is conveyed into the trust, by providing only a copy of the death certificate and a form affidavit. There is no probate, no delays, no creditor interference.

The Residential Real Estate Transfer on Death Act doesn’t just apply to married couples. Single individuals can convey their property to heirs through a Transfer on Death Deed, and avoid the probate process. Under most circumstances, holding a single individual’s property in a revocable trust may be a better, more comprehensive solution.

The act also simplifies planning for non-traditional couples, including those taking advantage of Illinois’ new civil union laws, though the benefits of entireties property do NOT apply in these cases.

In light of the new legislation, we will take time at each client’s annual review to re-examine how the residence title is held. If changes are appropriate, based on client objectives, we will recommend and implement them.

If you have questions about how your residence is titled, please call our office.

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