Understanding Homeowner’s Insurance and Trusts

If you’re a homeowner placing your property into a trust, you need to ensure that your homeowner’s insurance is properly structured to reflect this change. A failure to update the policy or properly list the trust as an insured party can lead to gaps in coverage, putting the home and its occupants at risk. This blog post will focus on understanding homeowner’s insurance and trusts.

Why Put a Home in a Trust?

Many homeowners choose to transfer their property into a trust to avoid probate, protect assets, or manage their estate efficiently. For example, revocable trusts (or living trusts) allow the homeowner to maintain control over the property during their lifetime while avoiding the probate process and providing a smooth transition to beneficiaries upon their passing. Irrevocable trusts, on the other hand, can offer asset protection but may limit the grantor’s control over the property.

How a Trust Affects Homeowner’s Insurance

Once a home is placed in a trust, the legal owner of the property changes from the individual homeowner to the trust. This shift can create complications with homeowner’s insurance coverage if the policy is not updated accordingly.

Here are some key considerations:

1. Listing the Trust as an Insured Party: The insurance company needs to be informed that the property is owned by a trust. Typically, you should add the trust as an additional insured or an additional interest to ensure there are no issues with claims or coverage.
2. Ensuring the Trustee is Covered: The trustee is responsible for managing the property on behalf of the trust beneficiaries. Some insurance companies automatically extend coverage to trustees, but others require a specific endorsement.
3. Verifying Liability Coverage: Homeowner’s insurance policies typically include liability coverage, which protects against claims from injuries or accidents on the property. When a home is in a trust, ensuring that liability coverage extends to the trust and trustee is essential.
4. Checking with the Lender (If Applicable): If the home is still under a mortgage, the lender may have specific requirements regarding homeowner’s insurance and trusts. Some lenders require notification and approval before the title is transferred into a trust.

Steps to Take

To avoid potential coverage gaps, homeowners should take the following steps:

• Notify the Insurance Company: Inform the insurer about the trust and ensure that it is properly added to the policy.
• Request an Updated Declarations Page: This document should reflect the trust as an insured party to confirm proper coverage.
• Review Policy Terms: Work with an experienced estate planning attorney and an insurance agent to ensure the policy covers all necessary parties, including the trustee and beneficiaries if needed.
• Confirm Umbrella Coverage: If there is an umbrella insurance policy in place, verify that it aligns with the trust structure to maintain full liability protection.

Transferring your home into a trust is a smart estate planning strategy, but it requires careful attention to the homeowner’s insurance details. By adding the trust as an additional insured entity, homeowners can protect their property and beneficiaries from unexpected risks and find peace of mind. 

If you have any questions or need help understanding homeowner’s insurance and trusts, feel free to contact our law firm.

Law Offices of Daniel A. Hunt

The Law Offices of Daniel A. Hunt is a California law firm specializing in Estate Planning; Trust Administration & Litigation; Probate; and Conservatorships. We've helped over 10,000 clients find peace of mind. We serve clients throughout the greater Sacramento region and the state of California.