A New Way to Transfer Residential Property To Beneficiaries
Effective January 1, 2012, Illinois lawmakers have devised a new way for residential real estate to pass to beneficiaries upon the property owner’s death without the need for probate proceedings. The Residential Real Property Transfer on Death Instrument Act (“Act”) provides that a property owner may execute a Transfer On Death Instrument (TODI) during the owner’s life that will transfer the residence to a beneficiary upon the owner’s death.
In order for a TODI to be effective, it must meet certain requirements. It must be signed by the owner or the owner’s agent, must be witnessed and signed by two or more witnesses, and must also be notarized. Finally, the instrument must be recorded before the owner’s death in the county in which the property is located. A TODI does not affect the rights of the property owner while he or she is alive, nor does it affect the rights of any other party with an interest in the property, such as a bank or the owner’s creditors. It only becomes effective when the property owner dies, and thus the beneficiary has no interest in the property while the owner is still alive.
While TODIs offer another way transfer real estate upon death, they also have some significant drawbacks compared to other methods of distributing one’s real property upon death. In addition to the strict administrative requirements listed above, there are additional administrative steps that must be met upon the death of the owner. The beneficiaries must execute a Notice of Death Affidavit and Acceptance of Transfer on Death Instrument, which must contain very specific information about the beneficiaries, must be signed by each beneficiary, and must also be recorded within 30 days of the death of the property owner . If the Notice isn’t recorded within two years of the owner’s death, the TODI will be void.
The TODI can be problematic for beneficiaries in that the owner's creditors can claim an interest in the property during the owner’s life, and liens attached to the property transfer to the beneficiary on the owner's death. Also, if the property is owned in joint tenancy, the joint tenants can complicate the transfer of real property if not all of them execute the transfer on death instrument. Thus, the last surviving joint owner determines whether there will be a beneficiary and who is designated as the beneficiary.
TODIs are designed to avoid the probate process. However, if a beneficiary of a TODI dies before the property owner and is not a descendant of the property owner, than probate may not be avoided. TODIs are best used for simple estates where there may be only a single beneficiary and where estate taxation is not an issue.
The TODI only affects interests in real property, whereas other estate planning documents like living trusts are more comprehensive tools for distribution of one’s property upon death. Living trusts can be used to avoid estate tax liability. The TODI is not an effective means of avoiding estate tax, because the property owner still owns the property as of death and the value of the residence would be included in the owner’s taxable estate at the date of death. Living trusts can also place certain restrictions on the distribution of assts that the TODI cannot accomplish, such as distribution of property upon a certain age. If the beneficiary of property under a TODI was a minor at the time of the property owner’s death, the minor would be unable to legally execute the proper documents required by the Act.
Transferring a residence in the manner provided for by the Act is another estate planning tool that may be used to avoid the necessity of probate. However, other estate planning tools may be more effective to accomplish one’s estate planning goals. It is advisable to contact an attorney regarding use of TODIs and alternative estate planning tools to create the most effective estate plan for one’s particular situation.
Illinois Court Defines the Test for Reasonableness of Noncompetition Agreements
Many employers require their employees to sign noncompetition agreements which restrict the employee from certain business activities if they no longer work for the employer. For example, a physician may agree not to practice medicine within 25 miles of the town in which his previous hospital employer was located for 6 months after he leaves employment. Determining whether such agreements are enforceable has become a hotbed for litigation. A 2011 Illinois case clarified how courts should evaluate the enforceability of those agreements in the wake of several Illinois court decisions that used differing standards.
Whether a noncompetition agreement is enforceable is generally determined by looking at three aspects of the agreement –the length of time it is effective, the geographic scope it covers, and the kind of business activities it restricts. The more limited the restrictions on time, geographic scope and activities, the more likely it is to be enforceable.
Courts have recently been divided over whether the legitimate business interest of the employer needs to be considered in the overall evaluation of the reasonableness of a noncompetition agreement. The Illinois Supreme Court clearly stated that it does. In addition to mandating that the business interest of the employer be a prong of the enforceability test, the court also directed courts to look to all the facts of a case in determining whether an employer has a legitimate business interest that needs to be protected by use of a noncompetition agreement.
Previously, some courts that were incorporating the legitimate business interest prong into the enforceability test were only looking at certain limited facts of the case at bar. Now, courts will examine all aspects of the employer’s business interest, such as the near-permanence of customer relationships, the employee’s acquisition of confidential information or trade secrets during his employment, and the extent of the limits on competition with regard to time, geographical area and the types of activity limited. No one factor or part of the test is more important than another in determining whether a noncompetition agreement is enforceable.
Overall, the court’s decision served to clarify the legal standard by which noncompetition agreements are evaluated, and has broadened the scope of enforceability of non-competition agreements. In addition to time and geographic scope, Courts are now directed to look at all factors when determining whether the employer has a legitimate business interest that needs protection, not just a couple specific factors. The decision should also result in future cases being determined under a more consistent framework. That in turn will assist lawyers, employers and employees in assessing whether a noncompetition agreement will be enforceable. If you have questions about enforceability of a noncompetition agreement, you should contact an attorney.
Real Estate Law Update
Several new legislative measures regarding real estate have recently been signed into law in Illinois. They are described below:
Purple Marks = No Trespassing. The Illinois Criminal Code now provides an additional way to notify the public that entrance onto property is prohibited. The owner or tenant of real property may place a vertical purple mark that is at least 8 inches in length, with the bottom of the mark being between 3 and 5 feet high, on trees or posts around the prohibited area. The marks must be readily visible to a person approaching the property and must be no more than 100 feet apart. Alternatively, property owners or tenants may cap or otherwise mark the top of a post on the property in purple. The caps must cover at least the top 2 inches of the post, the bottom of the cap or mark must be between 3 and 5.5 feet high and the posts must not be more than 36 feet apart. If the post is visible from both sides of a fence shared by different property owners, all property owners shall agree on the decision to mark the posts on the property. This method of providing notice must be also be accompanied by either personal written or verbal notice or by a printed or written notice conspicuously posted at the main entrance to the property. Further, the amended law does not authorize purple marking where doing so would violate the law and it does not apply to property located in a city with over two million inhabitants.
Leased Property Used in Furtherance of a Crime. The Illinois Code of Civil Procedure has been updated to provide that written leases shall include a notification to the tenant that if the tenant or other occupant uses or permits the property to be used to commit a felony or Class A misdemeanor the landlord shall have the right to void the lease and take possession of the property. If the landlord chooses to void the lease and recover the property, he or she may pursue a forcible entry and detainer action or may assign the right to bring the action to the State’s Attorney of the county in which the property is located or the corporation counsel of the city where the property is located, if they agree. If they do agree, the owner or landlord is still liable for the costs of the eviction process.
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