Law Office of
Michael J. Fleck, P.C.
-Illinois Legal Topics-
by Michael J. Fleck, Esq.
WARNING: THIS IS NOT LEGAL ADVICE. CONSULT YOUR ATTORNEY FOR INFORMATION CONCERNING YOUR PERSONAL SITUATION.
This is a series of discussions on legal issues in Illinois. Topics covered include Real Estate, Estate Planning and Administration (wills, trusts, probate and guardianship), Business Law, Employment and Civil Litigation.
- Real Estate - If you own real estate in your own name or as tenants in common with others (i.e. not in joint tenancy or tenants by the entirety when the joint tenant survives you) then formal probate will likely be required. (Exceptions are if Summary Administration, which is a streamlined form of probate, is available or a bond in lieu of probate through a Title Company). Transferring the real estate into a trust is a way to avoid the formal probate process on this asset. Creating a Transfer on Death Instrument (TODI) is another method.
- Small Estate - If you do not have real estate in your own name and all other assets that are subject to probate total less than $100,000. Then a Small Estate Affidavit can be used to collect and transfer assets. However, this does not avoid creditor rights, tax obligations, challenges to heirship or validity of a will as if formal probate took place. Note that Illinois is much more generous about small estates than other states. The limit of $100,000 is among the highest, and some states still require some sort of formal proceeding, even for small estates.
- Beneficiaries - If you name beneficiaries on assets. Life insurance, retirement plans, bank accounts and even some real estate through a Transfer on Death Instrument (TODI) can transfer the assets upon death. The asset is transferred by providing a death certificate and filling out the appropriate claim forms to receive the asset. Of course, if you name a beneficiary who receives the asset and lacks the maturity to properly manage the asset, it could be gone too soon. Placing it in trust for such a beneficiary can protect the asset until the beneficiary possesses the skill and maturity to manage the asset.
- Joint Tenants - If you have joint tenants on an asset. If you own real estate in joint tenancy or tenants by the entirety, the asset immediately goes to the survivor upon death. Under the Illinois Vehicle Code, joint tenancy is presumed if there are more than one owner on title. Note that this works for first to die, but not for second to die or if there is a simultaneous death. And, there can be terrible consequences for simply adding the children on as joint tenants. The asset can lose its step up in basis for capital gains purposes, the asset could be subject to the claims of the children's creditors during your lifetime, and the asset can be disposed of by a joint tenant (such as emptying mom's bank account). See our blog on the "joint tenancy problem" for more details on this issue.
- Real Estate - Real Estate interests can be transferred via a Deed in Trust. Care should be taken to assess the proper title, so that the correct grantor conveys the described real estate to the trustee of the trust and to all successor trustees. The specifics of a Deed in Trust can be complex and it is strongly advised that this should be done by a qualified attorney who can confirm that the transfer is proper, valid and appropriate for the trust beneficiaries.
- Existing Mortgages - You normally can transfer property into trust that is encumbered by a mortgage, despite the "Due on Sale" clause in the mortgage instrument. Federal law exempts this type of transfer specifically: "With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—...(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property." 12 U.S.C. § 1701j–3 (d) (8)
- Insurance - It is also advisable to contact your homeowner's insurance and let them know that your property is now transferred into trust. This may involve changes to the policy and/or ensuring that the trust is an additional insured.
- Other owners - Care should be taken to not disturb the rights of co-owners when transferring your interest into trust. Again, consult a qualified attorney to discuss the specifics.