Using Deeds to Avoid Probate in Illinois
Probate is a legal proceeding for transferring the assets of a deceased person to his or her heirs or beneficiaries. Probate can be costly and time-consuming, often tying up assets for months or even years as the probate works its way through the court system. Given the choice, most people would prefer to avoid probate. There are several ways that deeds can be used to avoid probate in Illinois.
Transfer-on-Death Instrument (Deed)
An Illinois transfer-on-death instrument (also called a transfer-on-death deed, TODI, or TOD deed) is a special form of deed designed specifically to avoid probate at death while allowing the owner to retain complete control during life. Transfer-on-death deeds avoid many of the downsides to other deeds described below and are often the preferred choice for transferring Illinois real estate in a way that avoids probate.
One way to avoid probate is to simply give property away during your lifetime. Because a gift of property removes it from your probate estate, there is no need to probate the property when you die. An Illinois quit claim deed can be used to give property to your family or loved ones during your lifetime.
Lifetime gifts come with a few significant drawbacks:
- When you give away real estate, you lose control and financial benefits of ownership. There’s no way to change your mind. If you want to use the property or need to sell it, there may be no way to get it back.
- A gift of appreciated real estate is not tax-efficient. When you make a gift of real estate, the appreciation stays with the property. This is done through a tax mechanism called transferred or carryover basis, which preserves all appreciation in the property. When your family member or loved one eventually sells the property, the appreciation that accrued while you owned the property will be taxed. You can avoid this by holding property until death instead of making a lifetime gift.
- A gift of real estate in excess of the federal annual gift tax exclusion ($16,000 in 2023) requires filing a gift tax return to report the gift. If the transferor has used his or her basic exclusion amount, gift tax may be owed on the transfer.
- Gifting property subjects it to claims by the recipient’s creditors. If you give the property to someone who is later sued or otherwise needs to declare bankruptcy, the property could end up in the hands of that person’s creditors.
Because of these drawbacks, some people prefer to use other means to avoid probate.
Joint Tenancy with Right of Survivorship
You can also avoid probate by transferring property to another co-owner as joint tenancy with right of survivorship. Joint tenancy with right of survivorship is one of the forms of co-ownership. When property is held as joint tenancy with right of survivorship, it passes to the surviving owner upon the death of each owner.
Example: Brett and Ashley own Illinois real estate as joint tenancy with right of survivorship. When Brett dies, the property passes automatically to Ashley. To confirm title, Ashley can file an affidavit of surviving joint tenant in the land records instead of going through probate.
Illinois quit claim deeds are often used to give property to a joint tenant with right of survivorship. If the property is being sold (instead of gifted), a special warranty deed or warranty deed may also work. Each of these deeds can be structured to create a joint tenancy with right of survivorship.
Tenancy by the Entirety
Tenancy by the entirety is a special form of co-ownership available only to married couples. Everything said above about joint tenancy with right of survivorship also applies to tenancy by the entirety. But tenancy by the entirety has a few enhancements:
- Property held as tenancy by the entirety cannot be transferred or mortgaged without the consent of both spouses.
- Creditors of only one spouse cannot reach the property to satisfy the debts of that spouse. Stated differently, the property is protected from creditors of only one spouse.
These features make tenancy by the entirety the preferred choice for most married couples.
Life Estate Deed
A life estate is a special form of co-ownership that divides ownership of the property into different points in time. One person, called a life tenant, holds tile to the property while he or she is alive. On his or her death, the property passes automatically to the next group of owners, called remainder beneficiaries.
The downside of traditional life estate deeds is that they give immediate, vested rights to the remainder beneficiaries. Even though the remainder beneficiaries cannot possess the property until the life tenant dies, they have an actual interest in the property. That means that the life tenant cannot sell, mortgage, or otherwise deal with the property without involving the remainder beneficiaries.
Some states, including Florida and Texas, have special forms of life estate deeds called lady bird deeds or enhanced life estate deeds. These deeds reserve powers in the life tenant to allow him to deal with the property without involving remainder beneficiaries. Unfortunately, though, Illinois does not recognize lady bird deeds.
Deed to Living Trust
A deed to a valid living trust can also avoid probate while retaining control during lifetime. For people with complicated wishes regarding property distribution, living trusts often provide more opportunities for planning than a deed alone. But living trusts can be expensive to set up and fund. Many people prefer to use deeds as a substitute for establishing a living trust. For those who already have living trusts established, a special warranty deed or quit claim deed can be used to transfer property to the living trust.