Illinois Transfer on Death Instrument (aka "TODI")

A transfer on death instrument ("TODI") is essentially a blend of some components of a deed and some components of a will.  

• Similar to a deed, a TODI must be recorded with the County Recorder prior to the owner's death to become valid.  Whereas a valid will is not recorded with the County.  
• A TODI is similar to a deed because it directs the transfer of your property.  However, a TODI is not a present transfer like a deed.  It is similar to a will because it's a testamentary transfer (meaning that it transfers after death).
• In terms of signing and executing, a TODI is more similar to a will than a deed because it requires two disinterested witnesses and the owner must be of sound mind and memory. If a beneficiary witnesses the TODI, their interests will be voided.
• Similar to both a will and a deed, a transfer may be made to a trustee of a trust under certain circumstances.

It is a common request received by Lohse Law: "I would like to add my child's name to the title of my home."  I inquire as to why; and the response is, "This will help avoid probate and will make sure they get the house in case I die."  

Adding a child to title is a method of avoiding probate. If a child is added to title, ownership becomes "Tenants in Common" or "Joint Tenants with the Right of Survivorship."  While this can work to transfer the property to the owner's children upon death, it may allow for other problems or issues to appear in the future. Here are a few examples of future issues that an owner my encounter by adding a child to title via quitclaim deed.

1. If you put your child on title and your child defaults on loans, then the creditors can come after your real estate. The creditors could put liens on your property and eventually foreclose on the property.
2. If you want to sell your property you will need your children to sign off on it too. This can be problematic if your children are incapacitated, unwilling, or unavailable to execute a deed.  
3. It is possible that a senior citizen owner qualifies for, or is receiving, a senior citizen property tax freeze.  Senior freeze exemptions can significantly reduce the annual property taxes due.  If a child is added to the title of the property, their income will count towards the household income.  If the child's income and the owner's income combined go above the senior freeze threshold, the senior freeze exemption may be dropped whereby causing the annual property taxes to increase (likely a significant increase).

A better option than a quitclaim deed may be a transfer on death instrument ("TODI").  A TODI will not permit your beneficiary’s creditors to put a lien on the property nor will it require your children to sign off on a deed if you decide to sell your home. 

The transfer on death instrument ("TODI") would usually be most beneficial for small estates (one owner and one beneficiary).  A TODI can avoid the complexity and expenses of creating a living trust for small estates.

For example: a widow could create a TODI to transfer her sole asset, her home, to her only living child as the beneficiary.  Utilizing a TODI in this scenario would ensure that the widow retains all of her rights in her house during her lifetime. Then, upon her death, the house would transfer to her only child (avoiding the delay of probate). 

A transfer on death instrument ("TODI") must be recorded prior to the owner's death, however, the interest or ownership rights in the property only transfers upon the owner's death. This means that the beneficiary does not have any rights to the real estate while the owner is alive.  This is of great significance to the owners because the beneficiary's creditors cannot place a lien on title to the property.  

The owner retains a present interest in the real property during the owner's life.  During the owner's life, the owner retains the right to sell -- or encumber -- the property, and the owner's creditors can claim an interest in the property.  These claims would transfer to the beneficiary on the owner's death.  

If an owner sells a property with a recorded TODI, the recorded TODI for the property is nullified.  It basically disappears.  A TODI is only valid for the described property and does not roll over to the next property (if an owner purchases another property).  If the owner wishes to create a similar transfer, a new TODI will need to be recorded.

Legally speaking, there is no "consideration" required when recording a transfer on death instrument ("TODI").  What this means in plain English is that the property isn't being bought or sold for any money.  Therefore, generally no transfer taxes are due.

Any number of the joint owners may execute a transfer on death instrument ("TODI").  Recording a TODI will not sever a joint tenancy or tenancy by the entirety.  It is recommended that all owners execute the TODI to prevent future issues.

For revocation, if all of the joint owners that executed the TODI are still alive, the TODI can only be revoked if all agree.  If less than all of the joint owners are alive that executed the TODI, then the last surviving joint owner(s) governs the validity of the instrument. 

Note: If less than all of the joint owners execute the TODI, then the last surviving joint owner governs the validity of the instrument. If the last joint owner to die did not execute the TODI, then any prior joint owner's designation of a beneficiary is ineffective.

A transfer on death instrument ("TODI") likely cannot avoid estate or inheritance taxes.  It’s important to distinguish between estate taxes, and inheritance taxes.

Inheritance Taxes are imposed on someone who actually receives an inheritance.  Currently there’s no federal or Illinois tax on inheritances.  Some states do have inheritance taxes, but not Illinois.  Illinoisans who inherit property, or receive it as a gift, are not taxed.   

Estate Taxes (aka "death tax") are imposed on the value of the estate before anyone inherits anything.  Because a TODI is not a trust, it does not help you avoid or minimize estate taxes.  However, there will be an estate tax exemption if the estate is valued under a certain threshold. As of 2022, at the federal level threshold is ~$12 million dollars and $4 million dollars for Illinois.  There is a greater chance that you will be required pay Illinois Estate Taxes than cereal estate taxes.

Note: Lohse Law is a real estate law office and does not provide in-depth estate planning or tax advice.  Please consult with an estate planning attorney, tax attorney or your accountant for more information about how estate and inheritance taxes may affect you.

This is a disadvantage and may cause issues if there are more than one beneficiary.  

If there is only one beneficiary and this beneficiary does not survive the owner (and is a descendant of the owner), then the property 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  beneficiary does not survive the owner and is not a descendant of the owner.  In a situation like this the property passes through the owner's estate. 

There can be disadvantages and planning measures that need to be discussed and accounted for if there are two or more beneficiaries.  If one of the designated beneficiaries dies before the owner, and the owner doesn't revoke the TODI before their death, the remaining living beneficiaries can take the shares of the deceased beneficiary. Here's an example:  Mom creates a TODI transferring her home to to her two children - a son and daughter.  Both son and daughter each have at least one child (grandchildren).  If son predeceases his mom, and the TODI isn't revoked prior to mom's death, the daughter (the son's sister) may get the entire property, whereby leaving son's children with nothing.  If there is potential for this scenario to occur, you should discuss with an estate planning attorney whether a TODI is the best option for you..

A licensed lawyer or real estate attorney must draft the Illinois transfer on death instrument ("TODI").  There is only one exception to this rule that will not void the transfer... An owner of real property is permitted to draft his or her own TODI.

Lohse Law charges $595* to prepare an Illinois Transfer on Death Instrument ("TODI") with up to two owners and two beneficiaries.  

In addition to preparing the TODI, Lohse Law will prepare the "Notice of Death Affidavit."  This will be given to the beneficiaries to complete and record with the County Recorder once the last owner dies whereby completing the transfer.

Lohse law will be happy to notarize the TODI if all owners and witnesses schedule an appointment at the Vernon Hills location.  

*plus local / county recording fees