Many homeowners choose to place their property into a trust for estate planning purposes. While this can be a smart move for managing assets and ensuring a smooth transfer to beneficiaries, it’s important not to overlook how this decision impacts your homeowner’s insurance.
What Is a Trust?
A trust is a legal arrangement where property is transferred to a trustee to manage on behalf of beneficiaries. There are different types of trusts—revocable (can be changed or dissolved) and irrevocable (permanent)—and both can hold assets like your home.
When a trust becomes the legal owner of your property, it changes who is listed on official documents like your deed. This shift can have implications for your insurance coverage.
Why Your Homeowners Policy Needs Updating
When you transfer ownership of your home to a trust, your homeowner’s insurance policy must reflect this new ownership structure.
If the trust isn’t named on your policy, there could be a gap in coverage. For example:
- If a fire or natural disaster damages the home, your insurance company could deny part or all of the claim because the listed “insured” does not match the legal owner (the trust).
- If someone is injured on your property, liability coverage could also be called into question if the ownership structure isn’t correctly documented.
Real-World Example
Jane and Mike recently transferred their home into a revocable trust as part of their estate plan. They assumed their existing homeowner’s insurance policy would remain unchanged. However, during a policy review with their insurance advisor, it was discovered that the trust needed to be listed as an additional insured. A quick update ensured their home and liability coverage remained intact, avoiding any future claims issues.
How to Properly Insure a Home in a Trust
- Notify Your Insurance Provider: Inform your agent as soon as your home is placed into a trust.
- Add the Trust as a Named Insured or Additional Interest: Your insurance provider can update your policy so the trust is listed alongside your name.
- Review Liability Coverage: Work with your agent to confirm that your liability protection extends to the trust and the trustee.
Protect Your Home and Your Future
Placing your home into a trust is a great estate planning tool, but it’s essential to align your homeowner’s insurance with this decision.
At Professional Insurance Programs, we can help you navigate this process and ensure your home remains fully protected. Contact us today to review your homeowner’s policy and make sure it reflects your trust ownership. We can be reached at 800-637-4676 or [email protected].