Protecting Your Home and Assets: Updating Homeowners Insurance When Placing Property in a Trust. Establishing a trust is a smart move for many homeowners. It offers substantial benefits, including asset protection and smoother property transfer to heirs. However, one critical step often overlooked in this process is updating your homeowner’s insurance policy. Failing to do so can risk your property—and your financial security.
Why Informing Your Insurance Agent Matters When you place your home in a trust, the ownership of the property changes from you to the trust. This change needs to be reflected in your insurance policy. If it isn’t, you might be without coverage when needed most.
Consider this scenario: Bob and Sue own a primary home and a vacation house. On the advice of their financial planner, they create a family trust and transfer ownership of both homes to it. However, they need to inform their insurance agent of this change. Months later, a fire damaged their vacation home. When they file a claim, the insurance company discovers the trust owns the house—not Bob and Sue. Because the trust isn’t listed on the policy, the claim could be denied, leaving them to cover the costs out of pocket.
The Risks of Not Updating Your Policy
- Coverage Denial: Insurance companies may deny claims if the named insured doesn’t match the property’s legal owner.
- Liability Issues: Without proper coverage, you could be personally liable for accidents or injuries on your property.
- Personal Property Protection: If the trust owns the home but you own the contents, you might not be covered for loss or damage to your personal belongings.
Steps to Ensure Proper Coverage
- Inform Your Insurance Agent: As soon as you transfer your property to a trust, notify your insurance agent. They can guide you through the necessary policy updates.
- Add the Trust as a Named Insured: Ensure the trust is listed as a named insured on your homeowner’s insurance policy. This ensures that both the property and the trust are protected.
- Consider Additional Endorsements: Depending on your situation, you might need to add endorsements to your policy. Options include:
- Protection Endorsement: Automatically includes trusts or LLCs you own as insured parties for the dwelling and liability coverage.
- Additional Insured Endorsement: Provides proper worldwide coverage for you and location-specific coverage for the trust.
- Review Umbrella Policies: If you have umbrella insurance, update it to reflect the trust’s ownership to ensure excess liability coverage extends to the trust.
- Consult a Professional: Work with your insurance agent and legal advisor to tailor your coverage to your specific needs, especially if the trust owns additional properties or vacant land.
Concise and Clear Explanation for Heirs: When inheriting a property held in a trust, you need to contact your homeowner’s insurance company and update the policy to reflect your name as the primary insured while also adding the trust as an “additional insured” to ensure proper coverage and avoid potential issues with claims in the future; this typically involves providing documentation proving your inheritance and the trust details.
The Bottom Line Setting up a trust and updating your insurance policy should go hand-in-hand. By taking these steps, you can enjoy the benefits of a trust—like asset protection and easier estate planning—without risking gaps in your insurance coverage.
Ensure your homeowners’ insurance policy reflects your property’s new ownership to protect your investment and give yourself peace of mind.