Transfer on Death Instrument Act

PA 97-0555, House Bill 1153. New Act 755 ILCS 27/et seq. Effective Date: January 1, 2012.

Illinois has a new law called the Illinois Residential Real Property Transfer on Death Instrument Act. This Act introduces a new document called a "transfer on death instrument," which authorizes an owner to transfer residential real estate to one or more beneficiaries on the owner's death. Section 20. An "owner" is defined as "an individual who makes a transfer on death instrument" and "beneficiary" is defined as "a person that receives residential real estate upon a transfer on death instrument." Section 5. A person can be "an individual, corporation, business trust, land trust, estate, inter-vivos revocable or irrevocable trust, testamentary trust, partnership, limited liability company, … or any other legal or commercial entity." Id. The definition of a "residential real estate" is adopted from the Residential Real Property Disclosure Act and the Illinois Mortgage Foreclosure Law. See 765 ILCS 77/et seq.; 735 ILCS 5/15 et seq. This Act applies to transfer on death instruments made before, on, or after the effective date of January 1, 2012, by an owner dying on or after the effective date. Section 10.

Section 40 provides three requirements for a transfer on death instrument:

  1. It must contain the essential elements and formalities of a properly recordable inter vivos deed.
  2. It must state that the transfer to the beneficiary is to occur at the owner's death.
  3. It must be recorded before the owner's death in the public records in the office of the recorder of the county in which any part of the residential real estate is located.

Failure to comply would render the instrument void and ineffective to transfer title. Section 40(b). Section 45 requires that the transfer on death instrument be signed by the owner, attested in writing by two or more credible witnesses, and notarized. The witnesses must attest that the owner executed the transfer on death instrument in their presence, that the owner signed on his own free will, and that he was of sound mind and memory. Id.

The Act "does not affect any method of transferring residential real estate otherwise permitted" by Illinois law. Section 15. Notice, delivery, or consideration is not required for a transfer on death instrument to be effective. Section 50. A transfer on death instrument is revocable and nontestamentary. Section 25 and 30. In order to make or revoke a transfer on death instrument, an owner must have the same capacity required to make a will. Section 35. An agent must have express authority to act by the owner under a power or attorney or similar instrument in order to make or revoke a transfer on death instrument on behalf of the owner. Id. Section 55(a)(1) provides two methods to revoke a transfer on death instrument:

  1. Another transfer on death instrument that revokes the instrument expressly or by inconsistency.
  2. An instrument of revocation that expressly revokes the instrument.

The revocation must be executed, witnessed, and acknowledged as required by Section 45 and recorded before the owner's death in the public records. Section 55(a)(2). A transfer on death instrument cannot be revoked by a "revocatory act on the instrument, by an unrecorded instrument, or by a provision in a will." Section 55(b).

During the owner's life, the transfer on death instrument does not do the following:

  1. Affect the owner's right to sell or encumber the residential real estate.
  2. Affect an interest or right of a transferee, lienholder, mortgagee, option holder or grantee.
  3. Affect an interest or right of a creditor.
  4. Affect the owner's or designated beneficiary's eligibility for public assistance.
  5. Create a legal or equitable interest in favor of the designated beneficiary.
  6. Subject the residential real estate to claims or process of creditors of the designated beneficiary.

Section 60(a).

If after recording a transfer on death instrument, the owner makes a contract for the sale or transfer of the residential real estate that is the subject of the transfer on death instrument, the transfer of death instrument is not revoked but the residential real estate passes to the beneficiary subject to the contract. Section 60(b).

On the owner's death, the interest in the residential real estate is transferred to the beneficiary, subject to the beneficiary's right to disclaim or refuse to accept the transfer. Section 65(a)(1); Section 80. Section 65(a)(2) provides that if a designated beneficiary does not survive the owner or is not in existence on the date of the owner's death, then the residential real estate passes to the owner's estate, unless Section 65(a)(3) applies. Section 65(a)(3) states that if the designated beneficiary is a descendant of the owner who dies before the owner, the designated beneficiary's descendants living at the time of the owner's death can take the residential real estate per stirpes. If the designated beneficiary is one of a class of beneficiaries, and any member of the class dies before the owner, the living members of the class takes the shares of the deceased member, except if the deceased member is a descendant of the owner, that deceased member's living descendants takes the deceased member's shares per stirpes. Id. The residential real estate passes subject to all conveyances, encumbrances, assignments, contracts, options, mortgages, liens, and other interests. Section 65(b). The residential real estate transfers without covenant or warranty of title, even if the instrument contains a contrary provision. Section 65(c). If it is unclear the order of death between the owner and designated beneficiary, then the designated beneficiary is deemed to have predeceased the owner. Section 65(d).

One or more joint owners may execute a transfer on death instrument. Section 70(a). A transfer on death instrument would not sever a joint tenancy or tenancy by the entirety. Section 70(d). If all the joint owners execute a transfer on death instrument, then the instrument can only be revoked by all of the living joint owners. Section 70(b). The last surviving joint owner may revoke the instrument notwithstanding any contract or agreement between the joint owners to the contrary. Id. If less than all the joint owners execute a transfer on death instrument, the last surviving joint owner governs the validity of the instrument. Section 70(c). If the last joint owner to die did not execute a transfer on death instrument, the designation by a prior deceased joint owner is ineffective. Id.

Section 75 provides the manner for accepting a transfer of death instrument. The beneficiary must sign and file a notice of death affidavit and acceptance in the office of the recorder in the county where the residential real estate is located. This section lists the information needed in the notice of death affidavit and acceptance. If a notice of death affidavit and acceptance is not filed within 30 days after the owner's death and a reasonable attempt to notify the beneficiary has been made, the owner's estate may take possession of the residential real estate in accordance with Section 20-1 of the Probate Act of 1975 and be entitled to a lien for all reasonable costs and expenses incurred in managing the real estate. If a notice of death affidavit and acceptance is not filed within two years after the owner's death, the transfer on death instrument is void and ineffective and the residential real estate will pass to the owner's estate. Section 100 offers a sample form for a notice of death affidavit and acceptance.

A transfer on death instrument or its revocation must be prepared by a licensed Illinois attorney or by the owner. Section 95. A beneficiary of a transfer on death instrument is subject to the same claims of creditors and statutory claimants to the same extent as a beneficiary of any nontestamentary transfer. Section 85. The statute of limitations to set aside or contest the validity of a transfer of death instrument is the earlier of two years after the owner's death or six months from the date that letters of office are issued. Section 90.

Posted on: Wed, 09/21/2011 - 9:45am

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