Transfers of Real Estate on Death
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4/19/2017 Real Estate Checklist - Things Every Elder Law Attorney Needs to Understand 4th Annual Elder Law Bootcamp: Basics and Beyond April 27 & 28, 2017 Paul Peterson, Miles L. Jacobs and Erica Crohn Minchella Sole Owner or Tenant in Common Property of deceased sole owner or tenant in common passes to his devisees assuming will is probated, retroactive to date of death No time limit on probating will to his heirs at law if no will per Article 2 of Probate Act (755 ILCS 5/1-1 et.seq.) See Affidavit of Heirship and Heirship Chart attached as exhibits to Rights of Heirs and Devisees in Illinois Real Estate booklet Subject to claims against the estate of deceased 6 months from publication of notice or 3 months from mailing per Sec. 18-3 2 years from date of death if no estate opened rights of the personal representative state and federal tax liens 1 4/19/2017 Passage of Title - Probated Estate Independent representative unless prohibited in will or supervised estate requested Independent Administration set forth at Article 28 of Probate Act Power to sell, lease, mortgage without court order per Sec. 28-8 Good faith purchasers for value protected in dealing with independent representative per Sec. 28-9 If real estate distributed to heir or devisee, independent representative required to record instrument of release and distribution prior to closing estate NOT a deed Sample form CCP 0421 at Cook County Clerk of Court website Is Probate Necessary or Desired? Probate applies to assets not otherwise disposed of Probate necessary to Determine heirship Admit will to probate to vest title in devisees Will contest period is 6 months per Sec. 8-1 Shorten claims period and pay and/or resolve claims Sell without guardian proceeding Minor or disabled heir or devisee Hold assets for missing heir or devisee 2 4/19/2017 Is Title Insurance Necessary? The deceased probably had a title insurance policy insuring them as of the date that they took title for the purchase price years ago Owner’s policy includes heirs and devisees who take by operation of law as of the date of the deceased’s title acquisition If they sell, they will need a title commitment anyway Possible items since the acquisition of title: Deed into revocable trust Joint tenancy deeds Transfer on Death Instruments Line of credit mortgage or reverse mortgage Judgements Unpaid taxes Deed in Lieu of Probate If all heirs and devisees, if any, are competent adults willing to convey, title company will consider insuring purchaser without probate Deed can recite grantees as “a, b and c, being the sole heirs at law and devisees of d, who died ______, ______, CTIC requirements listed at www.ntiweb.com, sample forms as exhibit in probate booklet Get forms from title officer Affidavit of heirship Death certificate Copy of will (if decedent died testate) State and Federal tax releases, if applicable Notarized Statement of Information re final expenses paid and no claims Personal Undertaking as to claims against the estate of the deceased Risk premium See exhibits re Statement of Information and Personal Undertaking 3 4/19/2017 Small Estates Affidavit 755 ILCS 5/25-1 et seq. Applies to transfer of personal property where total value of personal property in estate is less than $100,000 Purpose is to allow a holder of personal property to transfer assets to disclosed heirs or devisees without liability to third parties like undisclosed heirs or creditors for that distribution Affiant obligated to pay disclosed unpaid debts and valid claims prior to distribution to heirs or devisees Affiant indemnifies all relying on affidavit up to amount lost due to acts of affiant plus attorneys fees Surviving Joint Tenant 765 ILCS 1005/1 et seq. Four unities Time – created at the same time Title – acquired by same conveyance Interest – equal shares Possession – all have an undivided right to possession Title passes to the surviving joint tenant(s) on death Judgement solely against deceased joint tenant ceases to be lien on land Exceptions of tax liens and liens in favor of governmental bodies (Public Aid Code) Deceased joint tenancy affidavit – See exhibit Certified copy of death certificate Certified copy of will, if any Information re no state or federal estate tax due 4 4/19/2017 Tenancy by the Entirety 735 ILCS 5/12-112; 750 ILCS 65/22; 765 ILCS 1005/1c Requires marital residence owned as tenants by the entirety If valid homestead but later different homestead, title is in joint tenancy unless If divorce where order silent as to estate, tenancy in common If Tenancy by Entirety deed where property not homestead, unknown estate New judgement against one not enforceable against residence as long as parties stay alive, married to each other and both live in the residence Statute unclear as to whether judgement should be paid at sale of marital residence Judgement prior to purchase can be insured as subordinate to purchase money mortgage but raised as exception on owner’s policy Judgement not enforceable against owner until tenancy broken Judgement enforceable against mortgage if not purchase money mortgage On death of one spouse, treat like joint tenancy property Title in Trust Illinois Trusts and Trustees Act 760 ILCS 5/ Powers and authorities of trust per Sec 4.1 et seq. Certification of trust to third parties per Sec 8.5 Revocable Living Trust Deed in trust should have full power and authority, third parties protected language. See exhibit. Trustee can certify validity of trust per Trustee or successor trustee can act for benefit of settlor during settlor’s life if properly drafted incompetency provisions Pass beneficial interest or trustee conveys on settlor’s death without probate Where settlor is trustee and beneficiary of trust, trust assets may be subject to claims of creditors upon settlor’s death per Rush University Medical Center v. Sessions, 2012 IL 112906 Illinois land trust Separates beneficial interest from power of direction Trustee merely holds title, acts at direction of designated party Beneficial interest can be held as tenants by the entirety Contingent on death beneficiary can disclaim per 755 ILCS 5/2-7 5 4/19/2017 Transfer on Death Instrument (TODI) 755 ILCS 27/1 et seq. Transfers title to defined property on death of the individual executing Transfer on Death Instrument (TODI) Revocable per Sec 45 Transferor can still convey, sell or mortgage TODI property per Sec 60 Applies to residential real estate only, per Sec 5 being 1 to 4 units, a condo or agricultural land of 40 acres or less with a single family residence Sec 40 and 45 requirements for valid TODI essential elements and formalities of deed Be executed by owner and two witnesses and all attested by notary If beneficiary is witness, legacy to beneficiary in excess of intestacy share is void unless two other witnesses State the transfer is to take place at transferor’s death Be recorded prior to transferor’s death Transfer on Death Instrument (contd.) Transfer effective on death of transferor Contestable within two years of death of transferor or 6 months from issuance of letters of office Purchaser or mortgagee prior to lis pendens of contest takes free of contest Subject to terms of TODI Subject to liens and encumbrances of record at time of death Subject to claims of creditors of transferor per Rush Medical case? Beneficiary may disclaim If predeceased beneficiary, TODI instrument can contain alternate contingent beneficiaries If predeceased beneficiary was descendant of transferor, to beneficiary’s descendants per stirpies If to a class, to the remaining members of the class To the transferor’s estate if none of above 6 4/19/2017 Transfer on Death Instrument – Notice of Death Affidavit Notice of death affidavit to confirm title per Section 75 to include (1) the names and addresses of all beneficiaries, (2) the legal description of the land, (3) the street address and PIN for the land, (4) the date and recording number of the TODI, (5) the name of the deceased owner, (6) the date and place of death, and (7) the name and address to which future tax bills should be sent. The notice of death affidavit should be acknowledged before a notary public. The recording of a notice of death affidavit, however, is not a condition to the transfer of title under the TODI. Income Tax Basis of Transferred Assets Income tax basis is beyond the scope of this presentation Presenters are not qualified to give tax information This is a warning to refer client to qualified tax counsel or accountant Review IRS Publication 551: Basis of Assets at www.irs.gov If it is not clear, get the Fair Market Value of the asset on transfer and the transferor’s basis at transfer and send them to their tax accountant Basis on transfer can be subsequently be adjusted by things like recognized gains, capital improvements and depreciation 7 4/19/2017 Basis of Transfer from Spouse Basis of asset transferred from a Spouse is the basis of the transferring Spouse plus any gain recognized for transfer into trust where liabilities assumed are greater than basis of the property transferred Basis of Gift Gift – Per Pub. 551, basis at transfer can be either Fair Market Value (FMV) or donor’s basis If the FMV is equal to or greater than the donor’s basis at transfer, then the basis is the donor’s basis If the FMV is less than donor’s basis at transfer and you have a capital gain on sale, your basis is donor’s adjusted basis plus or minus your basis adjustments You have a capital loss on sale, your basis is FMV at the time of transfer plus or minus your basis adjustments No gain or loss if you use above to figure a gain and get a loss or to figure a loss and get a gain 8 4/19/2017 Basis of Inherited Property Per Pub.