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
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
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.