If your home or other real estate has been transferred into a revocable trust as part of your estate plan, your homeowner’s insurance policy must be updated to reflect the trust as an insured party. Failure to do so can lead to a potential denial of future claims because of a mismatch between the legal owner of the property and the named insured on the policy.
Key Steps to Ensure Proper Insurance Coverage for Real Property Titled to a Trust
- Notify Your Insurance Provider: Immediately contact your insurance agent or company. Request that the trust be listed as an “additional insured” or an “additional named insured” on your existing policy. This ensures the trust, as the legal owner, is properly covered.
- Ensure Proper Naming: The trust’s name must be listed exactly as it appears in the trust documents (e.g., “The Johnson Family Trust, dated January 15, 2025”). This is stated in the Certificate of Trust you should have received when you signed the Trust, and is updated as need to show changes.
- Verify Coverage Details: Confirm with your agent that both you (as the trustee and occupant) and the trust are covered for property damage and liability claims. Some insurers use a specific trust endorsement for this purpose.
- Obtain Written Confirmation: Get a revised declaration page or an endorsement in writing from the insurance company confirming the changes have been made and the coverage is intact.
- Review Annually: Periodically review your policy and estate plan to ensure they remain aligned, especially after any major life events or changes in property value.
Risks of Not Updating the Policy
- Claim Denials: The primary risk is that an insurer may deny a claim (e.g., after a fire or natural disaster) because the individual named on the policy no longer holds the legal title to the home.
- Liability Gaps: Liability coverage for injuries occurring on the property may not extend to the trust, the trustee, or the beneficiaries, exposing them to personal financial risk.
- Probate Complications: If a claim is paid out to an individual after their death and the property was in a trust, the funds might have to go through probate before being distributed to the trust’s beneficiaries, undermining avoidance of probate as a primary goal of having a revocable trust.
- Policy Cancellation: Transferring ownership to a trust could be considered a material change by the insurer, and failing to disclose this change could lead to the cancellation of the policy.
By taking these simple administrative steps, you can ensure that your home and your estate plan work together seamlessly to protect your assets.