Trusts and Insurance: Check Your Policies
Written by Fred A. Farsjo
When you set up a trust, you should also think about your insurance. There’s title insurance and home owner/fire insurance for real property, and automobile/liability insurance for vehicles. You should consider each one.
People often acquire title insurance when they purchase real estate. Title insurance insures the buyer. When you change the title to your trust, you should think about reviewing your policy to determine whether the policy should be assigned to the trust as the new owner.
This is also important if you are thinking of adding a child as a joint tenant or a spouse or significant other as a co-owner. Many title insurance policies will have assignment provisions that indicate the title insurance is still effective if the property is transferred to the owner’s revocable living trust. Some title companies, however, require the policy to be endorsed, which will cost you a fee of about $150.
For a home owner/fire insurance policy, you generally want to name the trust as an “additional insured” or “primary insured” under the policy. If you are insuring the contents of the home (your tangible personal property) and the tangible personal property is owned by the trust, insurance companies generally like to show the trust as the “primary insured” and you as the “secondary insured” for liability purposes. You should check with your insurance agent on or before your property is transferred to make sure there are no gaps in coverage.
With regard to business real estate, many people want to transfer their business real property into a limited liability company (LLC) to provide some protection against creditors. The trust can be the member of the LLC for ownership purposes. If this is the type of structure your attorney has suggested for you, you should make sure the LLC is named as the insured under the fire/liability policy.
As for vehicles, it is sometimes difficult to have an automobile insurance company insure your trust for property damage and you individually for liability purposes. To avoid that problem, you can own your automobile outside of the trust. Vehicles, unless of extraordinary value, are usually easy to deal with outside of a trust. If you are married, it’s easiest to own the automobile as joint tenants with right of survivorship. (In Arizona, the term “and/or” should appear between your names.) After the first death, the survivor can remove the deceased spouse’s name from the title. Then the survivor can designate a beneficiary, either the trust or an individual, to receive the vehicle at his/her death. If you are not married, you can designate a beneficiary at any time. Here’s that form.
If you have questions about assets, your estate plan, and insurance, your attorney and/or insurance agent should be able to help explain options for your specific situation.