Placing a home in a revocable living trust is a common estate planning strategy that helps homeowners avoid probate and manage asset distribution efficiently. However, one often-overlooked detail is ensuring the trust is properly covered by homeowner’s insurance.
Many homeowners assume their existing insurance policy will automatically extend coverage to the trust, but that is not always the case. If your trust is not listed as an additional insured on your policy, your insurer may refuse to pay out claims in the event of property damage or liability issues.
To avoid these risks, it is crucial to add your trust as an additional insured on your policy. Below, we’ll discuss why this is necessary, the risks of not doing so, and how to update your coverage.
What Happens When You Put Your Home in a Trust?
A revocable living trust allows homeowners to transfer ownership of their home from their individual name to the trust. This offers several key benefits:
- Avoids probate – The home passes directly to beneficiaries without court involvement.
- Provides incapacity protection – If the homeowner becomes unable to manage their affairs, a successor trustee can step in.
- Maintains privacy – Unlike a will, a trust does not become public record.
- Ensures smoother estate distribution – Beneficiaries receive assets according to the homeowner’s wishes.
However, once the home is placed in the trust, it is no longer legally owned by the individual but by the trust itself. This creates a potential issue with homeowner’s insurance, which is often still listed in the homeowner’s name.
Risks of Not Adding Your Trust to Your Insurance Policy
If your insurance company is unaware that the home is now owned by a trust, you could face the following risks:
- Claim Denial Due to Ownership Mismatch
- Homeowner’s insurance policies are tied to the named policyholder.
- If your trust is not listed and a claim is filed, the insurer may argue that the actual owner (the trust) is not covered and deny the claim.
- Liability Coverage Issues
- If someone is injured on your property and sues, your policy may not extend protection to the trust unless it is properly listed.
- This could leave your trustee or beneficiaries financially vulnerable.
- Potential Policy Cancellation
- Some insurance companies consider the transfer of property ownership to a trust as a material change in risk.
- If your insurer finds out after the fact, they may cancel your policy altogether.
To prevent these problems, it is essential to notify your insurer and add your trust as an additional insured.
What It Means to Add a Trust as an Additional Insured
When you add your trust as an additional insured, you are ensuring that:
- The trust itself is covered under the homeowner’s insurance policy.
- The trustee is protected in the event of property damage or liability claims.
- Insurance claims won’t be denied due to a technicality regarding ownership.
Some insurance companies may suggest listing the trust as an additional interest rather than an additional insured. However, this is not the same.
- Additional insured status provides full coverage to the trust.
- Additional interest status only notifies the insurer of the trust’s involvement but does not extend full coverage.
Be sure to clarify this with your insurance provider to avoid coverage gaps.
Steps to Add Your Trust as an Additional Insured
1. Contact Your Insurance Provider
- Call your insurance company and inform them that your home is now held in a revocable living trust.
- Ask about their process for adding the trust as an additional insured on your policy.
2. Provide Trust Documentation
- The insurer may request a copy of the trust document or a certificate of trust to confirm the trust’s ownership.
- They may also ask for a copy of the grant deed showing the transfer of the home into the trust.
3. Request Proper Policy Wording
- Ensure the trust’s name appears correctly on the policy.
- The policy should list:
“[Your Name], as Trustee of [Your Trust Name], dated [Trust Date].” - If the trust is not explicitly listed, the insurer may still deny claims.
4. Review the Updated Policy for Accuracy
- Once the change is made, request an updated copy of your policy and check that:
- The trust’s name is correctly included.
- Liability and property coverage extend to the trust.
- There are no exclusions or limitations due to the trust ownership.
5. Update Your Insurance Regularly
- If you modify your trust or switch insurance providers, update the policy to ensure continued coverage.
- Failing to do so could lead to coverage lapses or claim denials.
Common Concerns About Adding a Trust to an Insurance Policy
“Doesn’t My Existing Policy Already Cover My Trust?”
No, unless your trust is explicitly listed as an additional insured, your policy may not provide full coverage. The insurance company may argue that the trust, as the legal property owner, is not protected under the policyholder’s name.
“Will This Increase My Insurance Premium?”
Most insurance companies do not increase premiums for adding a trust as an additional insured. However, some may require an endorsement (policy amendment), which may involve a small administrative fee.
“Is This a Complicated Process?”
No, adding a trust to your policy is a straightforward process. A single phone call to your insurer and providing the required documents is usually enough to make the update.
How We Can Help
At KMSD Law, we specialize in estate planning and asset protection strategies to ensure your home and other assets are safeguarded. Adding your trust to your homeowner’s insurance policy is just one step in a comprehensive estate plan.
If you need help with:
- Setting up a trust for your home and other assets
- Reviewing your estate plan to avoid legal and financial pitfalls
- Ensuring your trust is correctly covered under your insurance policy
We are here to assist you. Contact us today for a free case consultation, and let us help you protect your home and estate.