The Transfer of Your Home to A Trust: Potential Insurance Issues

Written by Carter Bednar, Esq.

Transferring one’s home into a trust is a key step in estate planning. It allows control over who inherits the home and avoids probate upon the homeowner’s death, a primary goal of estate planning. However, failing to properly insure one’s home could lead to an insurance provider denying a claim, rendering all the hard work put into planning worthless.

What is a Trust?

A trust is a legal agreement in which property is transferred to a trustee, who manages the property for the benefit of beneficiaries designated by the trust’s creator, also known as the grantor. Trusts can take various forms, including revocable trusts that can be amended and modified, or irrevocable trusts that cannot be changed. When property is transferred into a trust, regardless of the type, the trust becomes the legal owner of the property.

The Risk of Trust Ownership

The hidden risk of transferring home ownership is that an insurance provider may deny a claim because the legal owner and named insured do not match. Since insurance providers base their coverage decisions on legal ownership, they may deny a claim if the insurance policy does not properly reflect the change in ownership.

How to Properly Insure a Home in Trust

The first step is to contact your insurance provider. Informing your agent as soon as possible of the new ownership structure can help avoid any potential gaps in coverage. The next step is to request that your trust be listed as an additional insured or named insured. This step is crucial as it provides your trust with an insurable interest in the property. The last step is to review your insurance policy and ensure that your liability coverage is sufficient.

Key Considerations

Placing one’s home into a trust is an invaluable estate planning tool, but it is essential to update this change in ownership on one’s insurance policy. Waiting too long to make this update can create a gap in coverage and potentially lead to a claim denial. It is also important to correctly name the trust on the policy, and working with your estate planning attorney can help ensure the trust is listed properly.