***This issue has an important update.***
In September, a ruling by the Illinois Second District Appellate Court sent small shockwaves throughout the Illinois estate planning community. The case, The Estate of Mendelson v. Mendelson, presented the Court with the question of whether real property transferred via a trust without recording the transfer is a valid transfer.
To preserve legal chain of title, real estate transfers in Illinois must be recorded with the appropriate county recorder of deeds office. Additionally, it is well-settled law that a transfer to a trust is valid without recording a deed if one later uses a pour-over will via probate.
Mendelson questions the need for a pour-over will or recording before death.
Timeline & Facts
- 2005: The decedent, Diane, signed a deed transferring the home she owned outright into joint tenancy with one of her 4 sons, Michael. The deed wasn’t recorded.
- 2006: Diane established a trust and executed another deed that, upon her death, divided the home among the 4 sons. The trust and that deed were recorded.
- 2011: Diane established a new trust, completely revoking the 2006 trust and designated Michael, once again, as the sole beneficiary of the home and successor trustee to Diane. On October 1, Diane died leaving her sons and no surviving spouse. A few days later, Michael recorded the 2005 deed and the 2011 trust. In November, the legal battle begins.
- 2014: A trial court ruled that the 2006 trust was valid and, thus, the home was to be shared by the 4 sons. Michael appealed.
Battle Theories
The Estate (representing the 3 sons) made 2 arguments: (1) The 2006 trust was valid; or (2) the 2011 trust was valid, revoking the 2006 trust but because the 2005 deed was recorded post-death, the home was probate property subject to Illinois laws of intestacy. Illinois descent and distribution laws state that if a property is subject to probate whereby there was no valid will in place and no surviving spouse, the property shall be divided evenly between descendants.
The Final Ruling
The Appellate Court found that the 2005 deed was invalid because it was not properly delivered to Michael; it wasn’t Diane’s intent to transfer the property to Michael then. The Court also found that the 2011 trust revoked the 2006 trust, the revocation meeting the requirements for revoking a trust. In so finding, the Court fleshed out the valid requirements of a trust: (1) intent to create a trust; (2) defined trust assets; (3) stated beneficiaries; (4) designated trustee; (5) stated purpose and administration provisions; and (6) delivery of property to trustee.
Mendelson’s ruling hinged on number 6: whether the property of the trust – the home – was delivered to the trustee. No Illinois law existed before this case to answer whether assets needed to be formally transferred to a trust.
In this case, the trust was a revocable living trust, so the Court reasoned that because the trustee of a revocable living trust already owns the property, no formal transfer was necessary. Therefore, Mendelson’s final ruling, which is arguably narrow, is that a “[trustmaker] who declares a trust naming herself a trustee is not required to separately and formally transfer the designated property into the trust.”
Accordingly, Michael’s actions after Diane’ death – recording the deed and trust – were legally valid.
The ruling caused shockwaves for 2 primary reasons: (1) Titling property to trusts is a revenue stream for title companies and municipalities; and more importantly, (2) if real estate is assigned to trustees without recording the transfer with municipalities, then the chain of title listed with the recorder of deeds indices will eventually become fraught with errors, leading to increased litigation over property rights. Nevertheless, for now, Mendelson is the law in Illinois.
