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Insurance implications of putting property into a Trust?

Are you putting property into a Trust?

Dying is complicated.  Not necessarily for the deceased, but for those left behind.  To ease the burden many are deciding to set up a trust. This will allow probate to be easier upon their death.

Many lawyers are recommending a trust, but they are forgetting about the insurance implications of this recommendation.

So, if you are funding a trust with property, like your home, you need to contact your insurance agent.   You will need to endorse the property insurance policy

Let me explain some of the roles of setting up a trust, in a non-legal way.

  • Trust:  A legal process which creates a separate legal entity (legal person) that is a fiduciary arrangement allowing a third part, a trustee, to hold or manage the assets on behalf of a beneficiary or beneficiaries.  Trusts can be arranged in many ways.  They can specify exactly how and when the assets pass to the beneficiaries.
  • Trustee:  The legal owner of the property responsible for managing the assets in the trust to the satisfaction of and according to the wishes of the “grantor” as outlined in the trust document. When the “grantor” is also the trustee, successor trustees are named to step in after death or incapacitation.
  • “Grantor”:  the person who conveys or transfers title in real property (selling or giving) to another and sets the terms of the trust. Other names could be “trustor” or “settlor.”
  • Beneficiary:  The person(s) who derives the benefit of the assets of the trust. Also know as the cestui que trust, this is the beneficial or equitable owner of the property- though not the legal owner.  The beneficiary is said to have the “use” of the property and can appeal to the court for an accounting or replacement of the trustee to ensure proper use of the property.

Since these new roles arise, the homeowner’s insurance policy needs to be changed to account for the various positions.

Will the trust own any vehicles or motorcycles or boats? 

Then the auto insurance, motorcycle insurance and boat insurance policies will all require endorsements as well.

If there is a personal umbrella insurance policy,  that will also require a change.

There are several endorsements available and some carriers even offer their own forms to provide coverage.

Many attorneys and financial planners are not advising their clients of the changes needed to be made to the insurance coverage.  So it might be several years or only at claim time that this is discovered.    Understanding that placing assets into a trust means that you need to have a conversation with your insurance agent is imperative.

If you are making these types of changes then please let us know.

How can Huff Insurance help?

As an independent agent, we have have worked many clients who have put property into a trust.   Our experienced team will work to make sure your insurance policies are protecting you and your trust.


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