In Illinois, the death of an individual triggers a process known as probate. Put simply, probate might be thought of as the legal process by which the assets of a deceased person are distributed, in line with the decedent’s wishes and in accordance with all state and local laws.
While virtually all estates will need to go through probate to some degree or another, there are ways to simplify and shorten this process ahead of time.
For example, by taking steps to help certain assets avoid probate altogether, you may be able to help ensure your family’s privacy, financial stability, and peace of mind in a difficult time.
One mechanism that one might use to help certain assets – including real estate, vehicles, and bank accounts or securities – avoid probate is to designate them to a beneficiary in the event of your death. There are two terms that come up when talking about this procedure, sometimes even used interchangeably – payable-on-death (POD) and transfer-on-death (TOD).
Let’s explore these concepts, and how they might be used to help certain estates of an estate bypass probate in different situations:
Payable-On-Death Designations
Generally, we refer to payable-on-death (POD) designations in reference to bank accounts, such as savings accounts and certificates of deposit.
With this arrangement, the account holder must complete paperwork with their bank or other financial institution to name the beneficiary (or beneficiaries). Up until the time of their death, this account holder will still control all of the money or funds in the account, can use it as they see fit, and may typically revoke the POD designation at their discretion. While the account holder is still living, the POD beneficiaries – and their creditors – have no rights to the funds or the accounts themselves.
When the account holder passes, however, the beneficiary is able to claim the specified assets directly from the financial institution, without having to wait for probate court proceedings to take place. Typically, all it takes for the beneficiary to inherit the assets is a completed claim form and a copy of the account holder’s valid death certificate.
Transfer-On-Death Registrations and Deeds
POD, broadly speaking, refers to a payout of funds from an account or policy; it might help to think of TOD, in contrast, as having more to do with taking over possession of an asset when someone passes.
In Illinois, there are various things that can be designated to a beneficiary on death, including securities, vehicles, and real estate.
When it comes to stocks and bonds, generally, the owner of a brokerage account will name their TOD beneficiary by completing some forms with their brokerage. After their death, the named beneficiary will inherit the account(s), working with the brokerage directly to handle the transfer – rather than the probate courts.
Similarly, a motor vehicle can be transferred TOD, provided that it meets certain criteria (i.e., that it is owned solely by one person, and that no third party, such as a lender, can claim a lien on it).
In Illinois, residential real estate, such as a house, can also be left to an inheritor outside of probate, thanks to what is known as the Transfer On Death Instrument (TODI). With this type of deed, the owner of the property names a beneficiary, who has no claim to the asset until the owner’s death. The homeowner can do what they’d like with the property, including revoking the TODI or selling the property, at any time. For more details on this mechanism, check out this informative post from the Illinois State Bar Association.
Other Considerations
While taking advantage of a POD or TOD designation may help transfer assets to your friends and family more quickly and at less cost than standard probate proceedings, it’s also important to recognize that both methods come with their own unique set of challenges and restrictions.
Sometimes, for instance, a smooth transfer of assets or account access is more easily said than done, and there are circumstances in which these proceeds may still need to go through probate. Most often, this occurs when the deceased names their estate as their beneficiary, or if their listed beneficiary has already died; in these cases, the asset will become part of the probate estate, and the court will determine exactly who will be included. A probate court may also need to get involved if the designated beneficiary is a minor, or if he or she is somehow incapacitated.
It’s also important to realize that there are other methods for helping assets avoid probate, including holding an asset in joint tenancy with rights of survivorship, or establishing a revocable living trust. Both of these methods also have their costs and benefits, and everyone’s estate planning decisions will ultimately be as unique as they are.
Have any more questions about these mechanisms? Interested in learning more about matters relating to estate planning and administration, probate, wills, trusts, or power of attorney in Chicagoland? Don’t hesitate to drop us a line to keep the conversation going.
