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Does Insurance Coverage Need to Be Updated When Your Home is Owned by a Trust?

Protecting the life you have built for people you love.
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July 2, 2024 •  Emily Hicks Law, PLLC
Now that you're created a trust, it's time to review your insurance policies. See what changes need to be made and why.

We work with families and individuals every week that value asset protection as well as transferring assets to heirs seamlessly, and a trust is a great tool that can accomplish both goals! A trust is simply an entity that holds title to assets like real estate, bank accounts, retirement accounts, business interests, and so much more.

In a nutshell, trusts define the assets held within, designate your beneficiaries, and designate a trustee to manage the trust assets. Once a trust is created, there is some homework that needs to be done to make sure your trust is doing it's job, and one of those things is to contact your insurance provider and add the trust to your policy.

Why add the trust as additional insured?

Simply put, if an event happens, the insurance company will only pay out to those who are specifically named on the policy. If there's a fire in your home and it destroys your structure (that is now owned by the trust) and your insurance is in your name, not the trust, you may not be able to collect your insurance proceeds.

Which policies are affected?

When transferring assets to a trust, it's crucial to review and update corresponding insurance policies:

Home insurance - This is a pretty clear one to make sure you get taken care of. After the home is transferred to the trust, the trust now owns the home, not the individual. Although you continue to live there and everything else seems to be the same, from an insurance standpoint, there can be big changes. Like we mentioned above, if a flood or fire happens, you may have trouble collecting funds if the trust is not named as additional insured.

Umbrella policies - If you don't adjust this policy, the trust that owns your house is vulnerable to claims, judgements, and various legal expenses.

Personal property insurance - Like the other forms of insurance coverage, if you have a personal property policy, it's important to have the trust covered. As part of setting up the trust, you've probably signed an assignment of personal property to transfer the ownership of your personal property to the trust.

Contact your insurance provider

Insurance policies vary widely on how trusts are treated, impacting eligibility and premiums. While trusts historically didn't fit standard definitions of insureds, carriers are adapting policies to accommodate estate planning trends. Placing a residence in a revocable trust can simplify estate distribution and avoid probate, but it's crucial to understand its impact on personal insurance coverage. Policies may need adjustments to ensure all occupants and trust-owned property are adequately covered.

According to Edie Williams, State Farm Agent, “It’s always a good idea to review your insurance policies with your Agent because they can help set them up to work the way you want based on your goals.”

We agree, Edie! Consulting with estate attorneys, financial advisors, insurance carriers, and tax professionals can help navigate these complexities and ensure comprehensive estate planning strategies.

If you're ready to start planning, give us a call today.

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