Wills, Trusts, and TODI, Oh My (When a TODI may work)

Illinois and Iowa are very different jurisdictions for estate planning. While planning in Iowa largely revolves around Wills and Trusts often TODIs are the best method to transfer real estate assets in Illinois. There are some challenges with TODIs but overall they are very cost effective and efficient transfer vehicles for eligible real estate assets.

What is a TODI?

A TODI is a transfer on death instrument. These instruments are governed, in Illinois, by statue. Generally, TODIs act as a special deed that meets the formalities of a Will and allows the grantor/decedent to pass the eligible real estate outside of the probate process. TODIs can, when used properly and as part of a larger estate plan, be used to bypass probate.

Limitations

TODIs are only available where identified by law. Not all real estate is eligible for transfer by TODI. Additionally, where there are other encumbrances to real estate a TODI may serve to create additional layers of complexity in the administration of that real estate. TODIs will not exclude creditors claims or other legally valid liens and encumberacnes on the property.

Warnings

Where significant assets are present a TODI may represent a planning risk for tax purposes. It is possible that follow on planners may miss the property under TODI as the client may fail to mention it as they feel that this asset is already planned. This may result in the accounting for the asset being incorrect and may result in losses due to tax consequences or due to spenddown rules among other potential risks if the grantor wishes to bequeath the asset after their death.

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