1 Last effective date: November 12, 2014 PUBLIC ACT 096-1145: CHANGES REGARDING TENANCY BY THE ENTIRETY By Richard F. Bales Chicago Title Insurance Company Introduction Public Act 96-1145 recently amended 765 ILCS 1005/1c, allowing a husband and wife to hold their beneficial interest in a revocable inter vivos trust as tenants by the entirety. The relevant part of the statute reads as follows: Where the homestead is held in the name or names of a trustee or trustees of a revocable inter vivos trust or of revocable inter vivos trusts made by the settlors of such trust or trusts who are husband and wife, and the husband and wife are the primary beneficiaries of one or both of the trusts so created, and the deed or deeds conveying title to the homestead to the trustee or trustees of the trust or trusts specifically state that the interests of the husband and wife to the homestead property are to be held as tenants by the entirety, the estate created shall be deemed to be a tenancy by the entirety. Public Act 96-1145 also amended 735 ILCS 5/12-112. As amended, the second sentence of this section now reads as follows: Any real property, any beneficial interest in a land trust, or any interest in real property held in a revocable inter vivos trust or revocable inter vivos trusts created for estate planning purposes, held in tenancy by the entirety shall not be liable to be sold upon judgment entered on or after October 1, 1990 against only one of the tenants, except if the property was transferred into tenancy by the entirety with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transferor s ability to pay those debts as they become due.
2 This new addition to statutes relating to tenancy by the entirety became effective on January 1, 2011. 735 ILCS 5/12-112 was also amended. (765 ILCS 1005/1c had already authorized a husband and wife to own a beneficial interest in a land trust as tenants by the entirety.) When these changes became law, several issues became apparent. The purpose of this article is to address these issues. Deed Drafting Errors There is precedent in the Illinois Compiled Statutes for the providing of model deed language. Consider, e.g., 765 ILCS 5/9; in describing the appropriate language for a warranty deed, the statute begins by stating that deeds for the conveyance of land may be substantially in the following form.... Unfortunately, the amendment to 765 ILCS 1005/1c does not provide for a similar roadmap. This omission has left parties to their own drafting devices, sometimes with disastrous results. For example, the statute provides that the interests of the husband and wife to the homestead property are to be held as tenants by the entirety. However, title companies are being asked to review incorrectly drafted deeds where the husband and wife, as co-trustees of the trust (and not the husband and wife, as individuals) are holding title in this manner. Consider, for example, the following improper language: John Smith and Jane Smith, husband and wife, convey and quit claim to John Smith and Jane Smith, co-trustees of the Smith Family Trust dated January 1, 2011, as tenants by the entirety. 765 ILCS 1005/1c makes it clear that there is a legal distinction between John Smith and Jane Smith, husband and wife, and John Smith and Jane Smith, as co-trustees of the Smith Family Trust. Ultimately, this may be a situation where the deed may be a valid conveyance of land, but may be invalid in terms of creating a valid tenancy by the entirety in the husband and wife who own the beneficial interest of the inter vivos trust(s). Model Deed Language On the other hand, the following examples of deed draftsmanship appear to meet the requirements of the statute: The following Example Number One can be used when there are two co-trustees of one trust.
3 claim to John Smith and Susan Smith, husband and wife, as cotrustees of the provisions of a declaration of trust dated January 1, 2011, and known as the Smith Family Trust, of which John Smith and Susan Smith are the primary beneficiaries, said beneficial interest to be held as tenancy by the entirety. Example Number Two can be used when one spouse is trustee of one trust and the other spouse is trustee of another trust. As noted above, 765 ILCS 1005/1c provides for such an arrangement. (Note that although one spouse is trustee of one trust, and the other spouse is trustee of another trust, the beneficial interests of the trusts are held jointly by the husband and wife. Compare this example to Example Number Four, below.) Or, claim to John Smith, as trustee of the John Smith Trust dated January 1, 2011, and Susan Smith, as trustee of the Susan Smith Trust dated January 1, 2011, the beneficial interest of said trusts being held by John Smith and Susan Smith, husband and wife, as tenancy by the entirety. claim a one-half interest in the land legally described herein to John Smith, as trustee of the John Smith Trust dated January 1, 2011, and a one-half interest in the land legally described herein to Susan Smith, as trustee of the Susan Smith Trust dated January 1, 2011, the beneficial interest of said trusts being held by John Smith and Susan Smith, husband and wife, as tenancy by the entirety. Example Number Three is another example of two trustees of one trust. claim to John Smith and Susan Smith, as trustees of the Smith Family Trust dated January 1, 2011, the beneficial interest of said trust being held by John Smith and Susan Smith, husband and wife, as tenancy by the entirety. Other Matters The statute limits tenancy by the entirety status to those instances where the homestead is held in the name or names of a trustee or trustees of a revocable inter vivos trust or of revocable inter vivos trusts.... But some people are preparing deeds where the title is held in the name of a trust(s) and not a trustee(s). Consider the following example:
4 John Smith and Jane Smith, husband and wife, convey and quit claim to the John Smith Trust dated January 1, 2011, and the Jane Smith Trust dated January 1, 2011. Admittedly, at least one court case indicates that a trust can hold title to property. See Sullivan v. Kodsi, 359 Ill. App. 3d 1005, 836 N.E.2d 125, 296 Ill. Dec. 710 (1st Dist. 2005), where the court said, A written trust possesses a distinct legal existence that is recognized by statute (760 ILCS 5/4 et seq.)... 359 Ill. App. 3d at 1010, 836 N.E.2d at 131, 296 Ill. Dec. at 716. However, the Trust and Trustees Act does not recognize a trust as an entity that holds title to property. See 760 ILCS 5/1 et seq. Did the legislature really intend to distinguish between a trustee or trustees holding title and a trust holding title? Probably not, but the statute does refer only to a trustee or trustees. This may be another instance where a deed in trust may be valid as a conveyance of real estate, but it may not be valid as to the proper creation of an interest as tenants by the entirety. The new language to the statute indicates that in order for the tenancy to be valid, the husband and wife must be the primary beneficiaries of one or both of the trusts so created.... However, title companies will probably not be concerned about examining the trust agreement to verify this fact. Title companies will be insuring the conveyance of real estate, which is separate and apart from the beneficial interest of the inter vivos trust, which is personal property. The transfer of the land will be valid, even if the husband and wife are not the primary beneficiaries of the trust(s). Although title companies may not care about this issue, the attorney for the husband and wife should be concerned. What if one has an inter vivos trust wherein the trustee has the general discretion to make distributions to a nonspouse during the husband and wife s lifetime? Is this still a trust wherein the husband and wife are the primary beneficiaries of the trust? In order to ensure that the tenancy by the entirety status is valid, attorneys should consider inserting specific language into the trust agreement or deed that states that the husband and wife are the primary beneficiaries of the trust. Conclusion It seems clear that an attorney must be careful when drafting a deed pursuant to this statute, as amended. The failure to conform to the statute may result in a deed in trust that successfully transfers the real estate, but fails to create a tenancy by the entirety in the holders of the beneficial interest of said trust. See the following example:
5 Example Number Four: claim a one-half interest in the land legally described herein to John Smith, as trustee of the John Smith Trust dated January 1, 2013, of which he is the sole trustee and the sole beneficiary, and a one-half interest in the land legally described herein to Susan Smith, as trustee of the Susan Smith Trust dated January 1, 2013,of which she is the sole trustee and the sole primary beneficiary, said beneficial interests of said trusts being held by John Smith and Susan Smith, husband and wife, as tenancy by the entirety. Note that this deed conveys the land to two trusts, but only one spouse is the beneficiary of each trust. This is different from the previous examples, where two trusts are created, but the husband and wife are the beneficiaries of each trust. It appears that this one difference is contrary to the statutory amendment. The statute provides as follows: Where the homestead is held in the name or names of a trustee or trustees of a revocable inter vivos trust or of revocable inter vivos trusts made by the settlors of such trust or trusts who are husband and wife, and the husband and wife are the primary beneficiaries of one or both of the trusts so created... the estate created shall be deemed to be a tenancy by the entirety (emphasis added). That is, the statute is conditional. In order to create a tenancy by the entirety, the husband and wife must both be the primary beneficiaries of the trust or trusts. In this example, there are two trusts, but only one spouse is a beneficiary of each spouse. This deed effectively passes title, but it appears that the tenancy by the entirety fails.