By now you’ve hopefully realized the importance of having a trust to protect your assets from the costly and ugly mess known as probate. If not, give us a call and we’ll happily talk to you about the benefits of having a trust. But once one has been established, an often-overlooked question is: how is my homeowners insurance impacted if my trust “owns” my house but the insurance names me as the beneficiary?
Once title to your home has been transferred to your trust, you will need to name the trust as a payee to your homeowner insurance. The reason being is that when the trust is established and you sign a deed transferring your home to your trust, ownership of the home is held by the trust and not by you as the individual. Your insurance policy will only pay for claims by those named within the policy and if your trust isn’t named, whatever it owns (the property) will not be covered. Warning bells should be going off for you after reading the previous statement! From an insurance standpoint, the trust owns whatever is specified within the deed for the property while you and your family as the people living at said property own all the personal effects contained within. More on that below.
Since your home has been placed in the trust, why not just name your trust as the only payee of your homeowners’ insurance you might ask. We discussed how that option works if the structure is damaged due to a flood or a fire as the insurance will pay the trust out for the repairs to the dwelling. But what about the personal items that might be damaged? While many trusts contain provisions for personal property, they generally don’t have all of your personal items such as that new 70″ 4k TV that you had to have for the Avenger’s movie viewing party or juniors’ favorite pair of running shoes. So, if the trust is named as the only beneficiary, personal effects are not typically covered. Another consideration to account for is what if the TV crashes down onto one of your guests while watching the movie and injures him or her? Guess who is liable for covering the cost of the injury? If you said Marvel Comics or the trust, you’d be wrong! Unfortunately, the homeowner’s insurance will only cover the trust and whatever items have been identified within it. The person that actually owns the TV (you) would be personally liable for the injury.
We just outlined why having only the trust named in your homeowner insurance is not the best option while not including the trust can be disastrous. Recognizing that both of those options are only partial solutions at best, what should you do?
The best way to incorporate your trust into your existing homeowners’ insurance is to name the trust as an “additional insured” party. This way the property can continue to be contained within the trust which will both provide tax benefits as well as protect it from probate.
You should work with your attorney as well as your insurance provider now rather than later to ensure that you, your assets, and your loved ones are adequately protected!