How Do You Handle Homeowners Insurance When Your House is in a Trust?

homeowners insurance policyQ. We decided to get our estate planning documents done and our home is now in a revocable living trust. We feel good about taking this action because our loved ones will not be overburdened with the nightmare of probate when we die, among other things.
A thought came to my mind recently. Are there any actions I need to take when it comes to insuring my home since ownership of our property has been transferred from us to the trust? Thanks for your help!
A. Many financial advisors and estate attorneys, such as myself, recommend revocable living trusts for clients who want to protect their assets from the public, expensive, and time-consuming probate process. Additionally, we recommend that clients over age 65 consider using the Living Trust Plus® Asset Protection Trust to protect their assets from probate, plus lawsuits, plus Medicaid, plus Veterans Aid and Attendance for qualified veterans.
Trusts are a great option for those looking to protect assets during their lifetime, and to preserve property, investments, valuables, and heirlooms for the benefit of future generations.
How Do Trusts Work?
All trusts are either revocable or irrevocable. With revocable trusts, you retain complete ownership and control of the property in the trust and can change all of the terms, including the trustees and beneficiaries. The primary goal of a revocable living trust, as mentioned, is to protect your assets from the nightmare of probate.
There are many types of irrevocable trusts, but by far the most common irrevocable trust that we prepare for our clients is the Living Trust Plus®, a special type of irrevocable trust that protects your assets from probate plus lawsuits plus the potentially catastrophic expenses of long-term care. The Living Trust Plus® protects your assets from the expenses of long-term care by making those assets exempt in connection with Veterans Aid and Attendance benefits and Medicaid benefits. With the Living Trust Plus®, you give away ownership of the property to the trust, but you can retain full control of the trust assets by being trustee of your own trust, just as you would with a revocable living trust.
What Happens with Your Homeowners Insurance When Your House is in a Trust?
Insurance policies are typically worded very carefully. In your homeowners policy, it likely lists you, your spouse, and possibly family members as the insured parties. But when you place your home into a trust, the trust now owns the home — not you, personally. And although from a day-to-day perspective nothing has really changed, from a homeowners insurance standpoint, that event can trigger big changes.
For instance, let’s say an electrical fire breaks out in your home and ultimately destroys the entire structure. Although you’re devastated, at least you know you’ve got good insurance coverage. But when the adjuster asks for a copy of the title and sees the home is owned by the trust (not you), and your insurance policy names only you (and not the trust), you could have a problem in collecting the insurance proceeds.
The same is true when it comes to liability insurance — if no change is made to your homeowners or umbrella policy, the trust in which your assets have been placed is neither an insured nor a named insured under those policies.
I’ve Just Set Up My Trust— What Do I Do Next?
When putting your home in a trust, one of the first things you need to do is add the trust to your homeowners insurance policy and any applicable umbrella policies.
The easiest way is to continue your insurance coverage in your name as you have before the trust but name the trust as an “additional insured” entity. In other words, your homeowners insurance policy should reference the name of the trust and the trust should be named as an “additional insured” on the insurance policy. Keep in mind that the wording on this needs to be very specific. Simply adding “trust” is not enough, as this is considered a “what” instead of a “who”. Only a “who” can be covered in a policy.
When a trust is properly added to your insurance policy, you still get the broad liability coverage you need along with the personal property protection for the contents of your home. In this situation, the trust is protected against liability issues that occur within the residence but left exposed to issues arising on vacant land or properties that are rented to others. In order for the trust to be protected in these circumstances, you’ll need to work with your agent to come up with a plan that will accommodate the needs of the trust.
After setting up your trust, be sure you’ve discussed your options with a knowledgeable insurance agent. Be sure to involve an insurance professional immediately following the formation of the trust.
Why It’s Important to Set Up a Trust to Avoid Probate
In light of this new information, you may be wondering if setting up a trust is still a wise idea. Why not just set up a Last Will and Testament?
While having a will is slightly better than dying without a will, wills have some major drawbacks — the biggest drawback being that a will forces your estate to go through probate, which is why trusts are so important.
The probate process includes proving the authenticity of a person’s will, appointing an executor, identifying and inventorying a person’s assets, paying debts and taxes, identifying heirs, and distributing property according to the will, or if no will is available, according to state law. As described in less detail earlier, the probate process requires frustrating intrusion by the court, lawyers, and the public into a very emotional, private, family time. All of your affairs will become public knowledge. Probate takes time and on average, the probate process takes from 5% to 8% of your family estate out of the hands of your beneficiaries and gives it to the courts and other outside individuals. This is why setting up a trust and avoiding the nightmare of probate is the best option for most people doing estate planning.
Get Your Estate Planning Documents in Place
According to a survey, only 42% of U.S. adults currently have estate planning documents in place. For those with children under the age of 18, the figure is even lower, with just 36% having an end-of-life plan in place.
If you do not have estate planning documents in place, now is a good time to get started. Having a will, a revocable living trust, a financial power of attorney, and an advance medical directive can certainly contribute to a healthy state of mind. These documents allow for the distribution of assets according to one’s wishes, the ability to make financial decisions on one’s behalf, and guidance for medical professionals on treatment and care.
Here at the Farr Law Firm, we have strategies to help everyone plan for themselves and their loved ones. With advance planning, each person can retain the income and assets it has taken a lifetime to accumulate, and provide themselves the peace of mind that they are prepared should something happen to them or their loved one. If you or your loved ones have not done Incapacity Planning or Estate Planning, or if a loved one needs nursing home care or even if your loved one is already in a nursing home, please contact us as soon as possible to make an appointment for an initial consultation:
Estate Planning Fairfax: 703-691-1888
Estate Planning Fredericksburg: 540-479-1435
Estate Planning Rockville: 301-519-8041
Estate Planning DC: 202-587-2797
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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.