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Title companies are working with drafters of the new transfer-on-death-instrument law to clear up questions and help prevent uncertainty.
On January 1, a statute went into effect giving Illinois estate planners a new tool for helping clients transfer assets at the time of death without going through probate court.
The statute remains a work in progress, according to one estate-planning attorney who helped draft the bill, but practitioners are working together with members of the title industry to iron out the wrinkles so the law will become easier to use for attorneys, clients, and the title companies that help facilitate transfers of real property.
"In any new legislation, it's impossible to think of every single problem that might arise," said DeKalb attorney Charles Brown, who is vice chair of the ISBA Trusts and Estates Section and a drafter of the bill. (See his article, The Transfer on Death Instrument Comes to Illinois, in the December 2011 IBJ.) "There are things we're talking about with representatives from the title insurance industry and there will be some corrections and legislative amendments to clear up some of these areas."
Helping property owners avoid probate
The Illinois Residential Real Property Transfer on Death Instrument Act, 755 ILCS 71/1 et seq., allows Illinois property owners to avoid probate court by transferring their residential property to their heirs by using a prerecorded instrument known as a Transfer on Death Instrument, or "TODI" form.
Brown said the ISBA Trusts and Estates Section Council helped draft the TODI legislation, which was based in large part on a similar statute drafted in 2009 by the American Bar Association's Uniform Law Commission. Feedback from practitioners has generally been favorable, Brown said, but ongoing conversations with people at title companies has shown some weaknesses in the legislation both sides believe can be easy to fix.
Although the TODI Act does not contain a sample TODI form, Brown said an attorney can review the statute and learn the necessary contents of the instrument relatively easily. First, he said, the TODI instrument must contain the essential elements of a properly recordable inter vivos deed and must be executed, witnessed, and acknowledged pursuant to section 45 of the Act. Second, it must state that the transfer will occur at the time of the owner's death. And third, it must be recorded with the appropriate county recorder's office prior to the owner's death.
"If any pushback is coming [from estate-planning attorneys], it's just from the idea that, 'Oh no, there's a new thing that I need to learn and get myself up to speed about,'" Brown said. "It's just human nature to not want to have to learn something all over again, but once they get into it they'll see that it's really not all that complicated."
Douglas M. Karlen, regional legal counsel for Fidelity National Title Group, which includes Chicago Title Insurance Company, said people from his title group have already started providing continuing legal education seminars about the TODI Act to help attorneys learn the new rules. That has been another advantageous way for practitioners and title companies to identify issues for legislative amendment, he said.
"The main point from the title companies' perspective is that the Act needs to have a provision that protects bona fide purchasers who take title from a beneficiary under the TODI law," Karlen said. "As the Act currently reads, there's a two-year maximum [statute of limitations] to challenge the purchase, and nothing to protect the purchaser."
Brown said the Act currently allows an interested party to file suit challenging the sale of estate property to bona fide purchasers within two years if the transfer occurred pursuant to a TODI instrument, or within six months if the estate is in probate court.
"The title companies would like the ability to know that when beneficiaries sell property within the six-month or two-year periods to a bona fide purchaser, that they are protected and [no legal challenge could] set aside the deed," Brown said. "You can always file suit to quiet title, but of course the whole purpose of the TODI instrument is to minimize the court's involvement, and we're working with the title companies to make that happen."
Another example of a wrinkle in the law identified by Brown and Karlen is whether the Act applies to mixed-use properties containing both residential and commercial space. The Act expressly applies to residential property, they said, but is silent about whether mixed-use properties qualify as "residential." The Act also does not expressly state whether a condominium parking space that is a separate "unit" from the residential condo property can be included in a TODI instrument covering both units.
"[Brown's] intention was that the Act should apply [to mixed-use properties], and our interpretation was that the Act does not apply, so we'd like some clarification on that," Karlen said.
As to whether a TODI instrument can include mixed-use property, Brown said "the statute doesn't say that you can, but it doesn't say you can't either. There should be ways that we can clear that up."
Brown said that his negotiations with Karlen and other title company representatives will continue, and he will be taking the agreed-upon issues to the ISBA Legislative Affairs Department for additional assistance with drafting legislative amendments. "Will work with [ISBA Legislative Affairs Director] Jim Covington to get it tacked on to some bill in the legislature to get the amendments put through this year," Brown said.
Brown is optimistic that amendments proposed jointly by ISBA members and the title companies will pass through the General Assembly with little opposition.
"The original bill met with very little opposition," Brown said. "It was seen as a win-win statute because it helped the constituents but also didn't cost the state any money. There's no cost to the state to administer or get involved with this - if anything, it will increase revenue for recorders' offices."