Planning for the future is one of the most important steps a homeowner can take. Illinois has created a simple, cost-effective way for property owners to transfer real estate directly to their chosen beneficiaries – without the delays and expenses of probate court. This option is called a Transfer on Death Instrument (TODI).
At Macon County Title, we often receive questions about TODIs, how they work, and when they make sense. Below, we break down the key details so you can decide whether a TODI fits into your estate planning strategy.
- What Is a Transfer on Death Instrument (TODI)?
- Why Use a Transfer on Death Instrument?
- What Property Can a TODI Transfer?
- Who Can Be a TODI Beneficiary?
- Co-Ownership and TODIs
- Do Owners Keep Their Rights After Signing a TODI?
- Tax Consequences of TODIs
- How Does a TODI Transfer Property?
- Can a TODI be Cancelled?
- What If the Beneficiary Dies First?
- TODIs and Mortgages
- Do TODIs Replace a Will?
- Can Illinois TODIs Be Used for Out-of-State Property?
- Final Thoughts
What Is a Transfer on Death Instrument (TODI)?
A Transfer on Death Instrument is a legal document that allows Illinois property owners to name beneficiaries who will receive their real estate after their death. Unlike a will, a TODI works outside of probate, meaning your beneficiaries don’t need to go through the court system to receive ownership.
Why Use a Transfer on Death Instrument?
The main advantage of a TODI is that it saves time and money. By avoiding probate, your family can receive the property more quickly and with fewer legal expenses. Many people use TODIs alongside other estate planning tools, such as wills or trusts, or a small estate affidavit, to make sure all of their assets are handled smoothly.
What Property Can a TODI Transfer?
In Illinois, TODIs can only be used for real property. This includes:
- Homes and residential properties
- Commercial real estate
- Farmland
- Vacant land
Who Can Be a TODI Beneficiary?
You can name almost anyone as a beneficiary, including:
- An individual (such as a child or relative)
- Multiple people
- A trust, corporation, or LLC
- A charity or government entity
You may also name backup (contingent) beneficiaries to protect against situations where your primary beneficiary cannot inherit.
⚠️ If you name a minor, you’ll also need to designate an adult custodian to manage the property until the child reaches 18.
Co-Ownership and TODIs
A TODI can also be used when a property is co-owned:
- Joint Tenancy / Tenancy by the Entirety: The TODI takes effect only after the last surviving owner dies.
- Tenancy in Common: A TODI applies only to the share of the owner who signed it. That beneficiary then becomes a co-owner with the other tenants in common.
Importantly, a TODI does not sever existing ownership arrangements.
Do Owners Keep Their Rights After Signing a TODI?
Yes. Signing a TODI does not give the beneficiary any ownership during your lifetime. You remain free to:
- Sell the property
- Mortgage or refinance it
- Use it as collateral
- Change or revoke the TODI
Tax Consequences of TODIs
Using a TODI does not create immediate tax consequences. However, it also does not avoid estate taxes. If the total value of your estate exceeds Illinois or federal thresholds, estate taxes may still apply.
How Does a TODI Transfer Property?
Upon the property owner’s death, the TODI automatically transfers ownership to the beneficiary. While not legally required, it is recommended that the beneficiary file a Notice of Death Affidavit and Acceptance of TODI with the County Recorder within two years of the owner’s death. This provides public notice of the transfer.
Can a TODI be Cancelled?
Yes. A TODI can be revoked at any time before death, as long as the revocation is notarized and recorded with the same county Recorder where the TODI was originally filed.
A surviving spouse may also have rights to cancel or renounce a TODI, depending on the circumstances. If preventing this is a concern, divorce or a spousal waiver may be necessary.
What If the Beneficiary Dies First?
If the named beneficiary dies before the property owner, the TODI may no longer be valid unless contingent beneficiaries are listed. Without backups:
- If the beneficiary was a descendant, the property passes to their children.
- If not a descendant, the property goes back into the owner’s estate and may require probate.
TODIs and Mortgages
A TODI can be filed even if the property has a mortgage. The mortgage or lien remains attached, and the beneficiary inherits the property subject to that debt.
Do TODIs Replace a Will?
No. A TODI is separate from a will and only applies to real estate. In fact, a properly executed TODI will override any conflicting will provisions regarding the same property.
Can Illinois TODIs Be Used for Out-of-State Property?
No. Illinois TODIs only apply to real estate located in Illinois. Other states have their own rules and forms.
Final Thoughts
A Transfer on Death Instrument can be a powerful estate planning tool for homeowners who want to simplify the process of passing property to loved ones. It’s flexible, revocable, and helps families avoid unnecessary probate costs.
To learn more or start the process of creating a TODI, contact the attorneys at Macon County Title.
Source: Real Property Transfer on Death Instrument Act, 755 ILCS 27/1 et seq. (Illinois 2022) — Illinois General Assembly.