“TODI” might look like the name of a Scandinavian DJ, but it’s actually short for Transfer on Death Instrument. One of the main reasons that TODIs were established by statute in Illinois in 2012 was to facilitate the transfer of real estate at a person’s death by giving an option other than a will or trust. A TODI might or might not be a helpful estate planning tool for your family to consider.
A TODI is a written legal document that is a lot like a deed, and has some features of a will. The process of setting up an effective TODI is relatively straightforward:
- Find or draft and complete a TODI form.
- Sign the form before two witnesses and a notary public.
- File the TODI in the county recorder’s office for the county where the property is located.
The TODI law requires that the form include the name of the grantor (aka the property owner), the name of the grantee (aka the beneficiary who will take over ownership of the property upon the owner’s death), language of conveyance (that’s legalese) and the legal description of the property, which must be residential. When the grantor passes away, the grantee takes over ownership of the property by virtue of the valid, recorded TODI. It is a good idea to hire a lawyer to prepare the TODI, and to obtain an updated title search to verify ownership status and property legal description.
Like all planning tools, TODIs have advantages and disadvantages and are not one-size-fits all solutions. Under the right circumstances, a TODI can work better than other frequently used planning tools.
For example, imagine a married couple who own a home together as joint tenants. They do well and own their home, but they aren’t rich and don’t own other land. They live in the home for many years, raise children there, refinance a couple times and eventually pay off the mortgage. After many years of ownership, one spouse passes away and the surviving spouse automatically inherits ownership of the home as the surviving joint tenant. If the surviving spouse still owns the home in just their individual name when they later pass away, probate proceedings will likely be necessary to transfer the home to a family member or third-party buyer. Probate has pros and cons, but if the home is the only asset requiring probate, it may seem overly time-consuming, stressful, and expensive.
One way our hypothetical surviving spouse could avoid probate is to add another joint tenant to the home’s title. Adding a new joint tenant isn’t ideal, because while it does allow avoiding probate, it does so by giving the new joint tenant immediate rights to full ownership and control of the property. So, in our example, while the surviving spouse is still alive, they sign a new deed to themselves and their son, the intended beneficiary who would get the house. But the son has struggled with finances in the recent past, and now that he owns real estate his judgment creditors can put liens against the house.
Another way the surviving spouse might avoid probate is by establishing a trust and putting the home in trust. The surviving spouse would have to hire a lawyer to draft a trust agreement, and the trust agreement will involve complexity, time, and expense beyond the simple home transfer problem to be solved. Then, another deed will be required to transfer ownership of the home from the surviving spouse into the trust. When the surviving spouse passes away probate can be avoided but administering a trust after death requires certain steps and notices, and can be as big of a cost and stressor as just going through probate.
A TODI might be a good option to set up the transfer of home ownership to a desired beneficiary. In contrast to a trust, which generally requires an attorney to draft a trust declaration or agreement, then a deed to put the property into trust, and then take steps to administer the trust upon the death of the trustor, a TODI can be prepared relatively quickly and inexpensively from a standard form document. While deeding to add a joint tenant—or even deeding the property with a reserved life estate—is just as straightforward and affordable as a TODI, the drawback is the loss of sole rights in the property during the grantor’s life.
TODIs are not without drawbacks and limitations. For one thing, a TODI must be filed with the county recorder while the grantor is still alive, and through that process it becomes public record. A will or trust, which need not be filed anywhere while the grantor is living, offers greater privacy, appealing to many people. Another potentially unexpected wrinkle is that a TODI only covers the specifically described property in it. If the grantor makes a TODI leaving his house to a beneficiary, but later sells that house and buys another one, a new TODI is required for the new house. Otherwise, the beneficiary is left with nothing, and probate will likely be required for a new house. Of course, nothing in this article is legal advice. To learn more about TODIs, and about pending legislation to improve their usefulness, contact the Law Office of Eric J. Long or other attorney of your choosing.