Estate Planning

Illinois law recognizes three ways that you can own property with others: Joint Tenancy, also known as Joint Tenancy with Rights of Survivorship or JTWROS (“JT”), Tenancy by the Entirety (“TBE”), and Tenancy in Common (“TIC”). All three are available for real estate ownership (see restrictions on TBE in the FAQ entitled “What is Tenancy by the Entirety”), but only TIC and JT are available for personal property. JT and TBE avoid probate, because on the death of one tenant the property passes to the surviving tenant(s) by law. Probate proceedings are generally required to pass a tenant’s share in a TIC as provided in his or her will or by the laws of intestacy, if he or she did not have a will.

In Joint Tenancy, each co-owner has an equal share of the property and survivorship rights. All two-person JTs are 50/50, all three-person JTs are 1/3, 1/3, and 1/3, etc. Each joint tenant has the right to use the entire property or to withdraw the entire value of the account. Rights of survivorship mean that a deceased co-owner’s share is divided equally among the surviving joint tenants. For example, Mai, Jan and Ted own a house as joint tenants. Upon Ted’s death, Ted’s 1/3 share would automatically be split evenly between Mai and Jan. Mai and Jan would then own the house 50/50, as joint tenants. Upon Mai’s subsequent death, if Jan survives Jan would be the sole owner of the house.

Tenancy by the Entirety (TBE) is the same as Joint Tenancy (JT), but with some additional features. First, TBE is only available to married couples and parties to a civil union and only for ownership of the couple’s primary home. As with JT, upon the death of one spouse or party to a civil union, the surviving spouse or surviving party to a civil union would own the entire house. The extra benefit TBE provides is a limited amount of creditor protection: if the transfer into TBE was not done to defraud existing creditors, a creditor of only one spouse or party to a civil union cannot force the sale of the house to repay the debt of one spouse or party. However, if a creditor has a claim against both the husband and the wife or against both parties to the civil union, the creditor can force the sale of the house. Once a TBE is established, an independent sale or lifetime gift by one of the TBE owners will transform the nature of the interest owned to a Tenancy in Common. After the death of one spouse or party to a civil union, TBE is terminated and the property is owned individually by the surviving spouse or the surviving party.

In Tenancy in Common (TIC), each co-owner (“Tenant in Common”) of the property owns a share in the entire property and can transfer her or his share during life or at death. Tenants in Common can own different shares of the property. For example, Mai, Jan and Ted are investors in a house as Tenants in Common, owning 50%, 30%, and 20%, respectively. Although Jan, Mai, and Ted own different percentages, each has the right to use the entire house. However, if they sell the house Mai gets 50% of the sale proceeds, Jan 30%, and Ted 20%. Similarly, if Mai wants to devise her ownership share of the house to her child, she can only devise her 50% interest. Upon Mai’s death, her 50% share would pass to her child under her will and her child would become the new Tenant in Common with Jan and Ted.

In order to create a tenancy of your choosing, you must specify the type of ownership, i.e., Tenancy by the Entirety (TBE), Joint Tenancy (JT), or Tenancy in Common (TIC), as applicable, on the deed or account documents. Once a JT is established, an independent sale or lifetime gift by one of the tenants will transform the nature of the interest to a TIC. A divorce, dissolution of a civil union or both spouses or parties to the civil union ceasing to treat a TBE property as a homestead will transform it to a JT.

In Illinois, an owner of a bank or security account may transfer the account to one or more beneficiaries upon his or her death by using a “payable on death” (“POD”) or “transfer on death” (“TOD”) designation. POD accounts may be used to transfer assets held in a bank, savings and loan, or credit union to a beneficiary, and are sometimes called “Totten trusts.” TOD registration is used exclusively for securities and investment accounts. At the owner’s death, the named beneficiary becomes the owner of the POD or TOD account without having to go through probate. POD and TOD accounts allow the owner to retain control over the entire account during the owner’s lifetime; the owner can cancel or change the beneficiary without notifying the beneficiary. A person can open a new POD or TOD account or convert an existing account to a POD or TOD by contacting their banker, broker, or financial advisor for the proper forms. Commencing on January 1, 2012 Illinois allows for the transfer of residential real estate by beneficiary designation in a deed. Special rules apply to the form of the deed and the acceptance of the real estate by the beneficiary after the death of the owner. Similar to the POD and TOD the owner retains control over the real estate and can cancel or change the beneficiary at any time without notifying the beneficiary.

A power of attorney (POA) is a legal document where an adult (age 18 or greater), known as the principal, gives authoritative power to another adult, known as the attorney- in-fact or agent, to act for the principal. POA’s can be general or specific in scope and can be revoked at any time by the principal. There are powers of attorney for property (for financial matters) and powers of attorney for health care decisions. A Power of Attorney which continues after the incapacity of the principal is referred to as a “durable power.” An agent’s authority under a power of attorney for property will end at the death of the principal unless the POA provides for an earlier termination. However if the agent is a spouse, his or her authority will terminate at divorce or when the courts specify. Illinois has statutory forms for both powers of attorney for property and powers of attorney for health care, but you are free to use other forms to create powers of attorney.

When selecting an agent to act under your power of attorney (POA), you should choose someone you trust to make financial, business or health care decisions consistent with your wishes. Therefore, you should talk with your agent so that he or she understands your wishes and feels comfortable with carrying them out. Neither an attending physician nor any other health care provider of the principal can act as agent for a patient for a health care POA, but a person not administering health care to the patient may act as agent, even though that person is a physician or other health care provider. At all times, your agent must exercise the authority granted to him or her under the POA in such manner as they deem consistent with your intentions and desires. An agent is not legally required to exercise the powers given to him or her under the POA. If using the statutory Illinois forms, the principal cannot appoint co-agents. Successor agents, however, may be designated in the statutory forms.

A Power of Attorney for Property (POA-P) authorizes an adult to act for you on property and financial matters upon the occurrence of a specified event, such as a specific date or the principal’s incapacity. Financial or business affairs may include paying bills, taxes, managing property, handling investment decisions and other money matters. This document may be referred to as a durable financial power of attorney.

A Power of Attorney for Property (POA-P) can be very specific in nature detailing only certain actions the attorney-in-fact may take, or it may be broader in scope giving the agent the authority to manage all of the principal’s financial affairs – business and personal. It can become effective at the time of execution, or it can “spring” into effect when triggered by an event such as disability or other triggering incident. Any acts authorized in the POA-P, when performed by the agent, bind the principal as if he or she personally took the action.