More on Nonprobate Transfer Bill (Illinois SB 297)
I've taken a closer look at Illinois SB 297, which is intended to create the Nonprobate Transfer Act (the "Act"). The full text of the Act -- which is not yet law -- is here.
A few comments:
1. As I've discussed here many times, probate is a trade-off. It takes some time and money -- that's the downside. The upside is that it's a system, with court supervision, and works in an orderly manner. If someone has doubts about whether the decedent meant to give property to someone (was he or she incapacitated or subject to undue influence?), there's a procedure to deal with that. If someone has a claim against a decedent, there's a procedure for having that claim resolved.
2. The intent of the Act appears to be to loosen the requirements for making a transfer upon death. For instance, Section 40 of the Act allows the use of a deed "that conveys an interest in real property to a grantee designated by the owner [and] that expressly states that the deed is not to take effect until the death of the owner," and specifies that such a deed can (and should) be filed with the recorder's office before the owner dies. Section 45 allows for the transfer of tangible personal property in a similar manner, by a statement "executed by the owner and acknowledged before a notary public or other person authorized to administer oaths."
3. In many ways, the Act seems pretty irrelevant. You can already avoid probate by leaving property via beneficiary designations. This has been done for a long time with respect to retirement benefits and insurance, and is now being done more often with respect to other types of property (like investment accounts).
4. My concern as a probate attorney is that the Act -- and beneficiary designations in general -- make it more difficult for the interested parties I mentioned above to monitor property in which they might have an interest. For instance, let's say that Jane Smith is incapacitated, but her granddaughter, Chloe Smith, is able to force Jane to designate Chloe as beneficiary of all of her property when Jane dies. Section 110 of the Act says that "[a] beneficiary designation... that is procured by fraud, duress, or undue influence is void," but how do the rest of the members of Jane Smith's family find out about the nature and extent of these transfers? Section 110 goes on to say that you can petition the court if you are an interested person, but I'm unclear as to how you'd do that. Would it be in the probate court, even though Section 10 of the Act says that beneficiary designations are supposed to be "exempt from the requirements of the Probate Act"?
5. What about creditors of an estate? Section 160 has an answer, and it isn't pretty:
Each recipient of a recoverable transfer of a decedent's property shall be liable to account for a pro rata share of the value of all property received, to the extent necessary to discharge the... claims remaining unpaid after application of the decedent's estate, including expenses of administration and costs...
In other words, let's say that you are a creditor of a decedent who left everything to his family via beneficiary designations. Let's say that the decedent owed you $50,000. You as creditor evidently have to track down every piece of property passed by the decedent via beneficiary designations, so that you can figure out each beneficiary's pro rata share of the $50,000. And if those beneficiaries don't have the money anymore?
