When doing your estate planning in Illinois, understanding your options for transferring real property is essential. Two commonly discussed tools are the Transfer on Death Instrument (TODI) and the quitclaim deed. While both can facilitate property transfers, they serve fundamentally different purposes and come with distinct advantages and drawbacks.
Partnering with an experienced estate planning attorney can clarify how each option works, including the potential risks and advantages, and help you determine which is best aligned with your long-term goals.
Let’s explore the realities behind TODIs and quitclaim deeds under Illinois law, along with the pros and cons of each planning tool.
Explaining Transfer on Death Instruments (TODIs) in Illinois
In Illinois, a Transfer on Death Instrument is a statutorily created deed that allows an owner to name one or more beneficiaries to receive residential real estate upon the owner’s death, avoiding the need for probate.
The TODI is governed by the Real Property Transfer on Death Instrument Act, 755 ILCS 27/. It must be signed, witnessed, notarized, and recorded in the county where the property is located while the owner is still alive.
A TODI is revocable during the owner’s lifetime, meaning the owner can change beneficiaries, revoke the instrument, or sell or refinance the home without the beneficiaries’ consent.
The transfer becomes effective only after the owner’s death, and beneficiaries generally confirm title by recording a notice of death affidavit with the county recorder.
Public Act 102-0068, effective January 1, 2022, expanded TODI availability to cover all types of real estate. This includes residential, commercial, agricultural land (of 40 acres or less), mixed-use, and recreational properties.
The Act authorizes TODIs for “real property,” which encompasses commercial and mixed‑use property, such as office buildings, retail/strip centers, warehouses, industrial facilities, multifamily buildings of up to 4 units, and other income‑producing commercial properties. These can now be transferred by TODI.
TODIs for Small Business Owners
Illinois business owners and investors can now transfer commercial real estate directly to heirs without probate, thanks to amendments to 755 ILCS 27/5.
While corporations are not eligible to use TODIs, single-member LLCs can use this tool to transfer these types of assets:
- Mixed-use buildings that include an owner-occupied residence
- Industrial properties owned by individuals or single-member LLCs
- Small office buildings
- Shops and retail space
This change helps small business families ensure the continuity of their brand while avoiding the time commitment and expense associated with probate.
What is a Quitclaim Deed?
A quitclaim deed is a type of deed used to transfer any interest the owner currently has in a property to another person. Unlike a warranty deed, a quitclaim deed does not guarantee a clear title. It simply transfers the owner’s present rights — no more, no less.
Quitclaim deeds are often used when:
Transferring property between family members
- Adding or removing a spouse or former spouse from the title
- Transferring property into or out of a trust or business entity
- Clearing up potential title issues (“clouds on title”)
In Illinois, a quitclaim deed becomes effective as soon as it is signed and recorded, thereby granting the new owner immediate legal rights in the property. The deed itself is not an estate planning document; it is an immediate conveyance that may or may not align with a person’s broader estate plan.
TODI vs Quitclaim Deed: Key Differences in Estate Planning
Although both documents transfer property, they do so in different ways and for different purposes.
Timing of Transfer
TODI:
- Property transfers only at death.
- The beneficiary has no ownership while the owner is living.
Quitclaim Deed:
- Transfer happens immediately upon recording.
- Recipient becomes a current owner.
Why It Matters:
If you want to retain complete control of your property while you’re alive, a TODI is typically more appropriate.
Effect on Probate
TODI:
- Avoids probate for the real estate named in the document.
- The beneficiary receives ownership automatically upon the owner’s death.
Quitclaim Deed:
- Since ownership transfers during life, the property is not part of the owner’s probate estate.
- The owner gives up some rights while living, which many clients do not intend.
Why It Matters:
Both avoid probate, but only the TODI does so without giving up ownership during life.
Control and Flexibility
TODI:
- Fully revocable.
- The property owner can change beneficiaries, revoke the TODI, or sell the property.
- A beneficiary has no legal rights until the owner’s death.
Quitclaim Deed:
- Generally irrevocable once delivered and recorded.
- Adding someone via a quitclaim deed creates immediate co-ownership, which can pose risks if relationships change or if co-owners disagree.
Why It Matters:
Clients who want flexibility almost always prefer a TODI.
Tax Implications
TODI:
- Beneficiaries typically receive a step-up in cost basis, potentially reducing capital gains tax if they sell later.
Quitclaim Deed:
- If property is transferred during life, the recipient generally gets a carryover basis, which can result in higher capital gains taxes.
Why It Matters:
From a tax perspective, TODIs often create far more favorable outcomes for heirs.
A Trust as a TODI Beneficiary
It’s important to note that your TODI beneficiary can be anyone living, as well as a company, trust, or government entity.
To do this, you must precisely name the trustee of the trust (e.g., “Jane Smith, Trustee of The Smith Family Living Trust”) and the legal description of your property in the TODI document, have it properly signed, witnessed by two people, notarized, and recorded in the county recorder’s office before your death, making the trust the owner after you pass. An experienced Illinois estate planning attorney will help ensure your wishes are followed exactly.
Making the Right Choice for Your Estate Plan
The decision between a TODI and a quitclaim deed depends entirely on your specific circumstances and objectives.
TODIs excel when your primary goal is transferring property at death while maintaining complete control and flexibility during your lifetime. They’re particularly well-suited for simple estates where avoiding probate represents a key priority and where owners want to protect themselves from the risks associated with immediate property transfers.
Quitclaim deeds serve different purposes. They’re appropriate when immediate ownership restructuring is necessary, and parties have sufficient trust to proceed without title warranties.
Common scenarios include adding a spouse to a title, transferring property into an established trust, or implementing divorce settlements.
However, many estate planning attorneys recommend TODIs over quitclaim deeds for transferring property to heirs due to tax advantages, maintained control, and creditor protection. The immediate and irrevocable nature of quitclaim deeds, combined with unfavorable tax treatment and loss of control, makes them problematic for many estate planning scenarios.
Consult with an Estate Planning Attorney
Both TODIs and quitclaim deeds have specific legal requirements and significant consequences.
Successful estate planning involves careful consideration of your assets, family dynamics, tax situation, and long-term objectives in partnership with a knowledgeable attorney.
The experienced Illinois estate planning attorneys of the Law Offices of J. Jeltes can evaluate your circumstances, explain how these tools would function in your specific case, and recommend strategies that align with your goals while protecting your interests.
We also ensure proper document preparation and execution, avoiding technical errors that could invalidate your estate plan or create unintended consequences for you and your beneficiaries.
Professional legal guidance helps ensure your wishes are properly documented and legally enforceable, providing peace of mind for you and security for your loved ones. Reach out and schedule a confidential consultation with us today!
