law offices of merwyn j. miller
191 calle Magdalena, suite 270 • encinitas, San Diego County, ca  92024 • 760-436-8832

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Purpose of Trusts
Transfer Title to the Trust
Effect of Title on Insurance Coverage
Kwok Case
Additional Insured Approach
Title Insurance Endorsement

Dear Mr. Miller:

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?


Dear Confused:

Purpose of Trusts: You are not alone. Many people with whom I talk, are confused about Trusts in general, title to the house, and a myriad of other things. Let’s back up a bit. First, there are 1000's of different configurations of Trusts. Some of them are focused on Probate Avoidance, some on Tax Reduction, some on Asset Protection for the kids or the creators, some on Medi-Cal or Veterans Benefits qualification. Some of them are well written, some of them maybe not. (back to top)

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)

Effect of 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)

Additional Insured 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)

Title Insurance 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)

May 6, 2017