Introduction: Last month I created
a Living Trust and the lawyer did a deed to title my house in the
Trust. Recently, I was told that I needed to add my trust under my
homeowners insurance policy. The house is already titled in the name
of the trust so what are these people talking about?
Transfer Title to the
Trust: I’m going to assume that yours is the “garden variety”
Living Trust focused on Probate Avoidance. Now, don’t get me wrong;
I’ve written many, many of these types of trusts. But since so many
people have them, I refer to them as “garden variety,” especially
because they don’t deal with any of the more complex issues. In the
garden variety Trust cases, it is typical to transfer title of the
house and other real estate and assets to the Living Trust. For real
estate, that is generally accomplished by a deed which is then
usually recorded with the county recorder. And that should take care
of the Probate Avoidance issue. (back to top)
Title on Insurance Coverage: But what if the house burns down?
You probably have homeowner’s insurance to cover you for that;
hopefully, in a high enough amount that you will be able to rebuild
the house if it burns to the ground. Here’s the issue: if the house
burns to the ground and you go to the insurance company requesting
money to rebuild the house, will they pay you? It is possible,
although I am not aware of this ever occurring in real life, that
the insurance company would respond by telling you that, yes, you
have a policy (i.e. you are the insured) but since the trust owns
the house and the trust is not an insured, they have no liability.
(back to top)
Kwok Case: Is this insurance company
rejection of liability likely to occur? One attorney I know has
cited the 2009 California Court of Appeals Kwok case (170 CA 4th
1562) for authority for this potential disaster being real. I
disagree with him as that case had to do with title insurance and
the termination of the policy under the policy’s own terms by a
transfer to a Living Trust. In your situation, as far as I know
(although this may depend on the specific policy), the coverage does
not terminate when you transfer title to the Trust. Now all that
being said, keep in mind, I am a California Estate Planning
Attorney; I don’t know the law of any other state and I am not an
expert on insurance law. So if you are worried, ask your attorney.
(back to top)
Approach: Now, like I said, don’t panic as I have never heard of
this situation actually occurring in the homeowners insurance field.
Nevertheless, I have been telling my clients, probably since the
first Living Trust I ever wrote, that they should ask their
insurance agent to name the trust as an “additional insured” under
the policy. And that applies not only to their home, but any other
real estate or insured asset being transferred to the Living Trust.
Since I have never had a client tell me that there was a charge for
that addition nor tell me that the agent had no idea about to what
they were referring, I have to assume that all insurance agents are
well aware of this technique and that it is free.
(back to top)
Endorsement: Further, for those of our California readers who
are concerned about the title insurance issue, a call to the title
insurance company to obtain an appropriate endorsement should solve
this problem, also. For certain properties it may not be necessary
or even worthwhile. But that subject is well beyond the scope of
this column. (back to top)