Trustee's Guide To Home Insurance

When a house is placed in a living trust, the trust becomes the owner of the home, not the individual. This means that if the insurance policy is not updated, the trust is not covered in the event of a claim. Therefore, it is important to add the trust as an additional insured entity on your home insurance policy. This ensures that the trust is protected against liability issues that occur within the residence. However, it is important to note that this leaves the trust exposed to issues arising on vacant land or rented properties. To ensure full protection, individuals should work with an insurance agent to accommodate the needs of the trust.

Home insurance

Understanding the Role of a Living Trust

A living trust, also known as a revocable trust, is a legal arrangement where you, as the grantor, transfer ownership of your property to a trust. This allows for a seamless transfer of your assets, including your home, to your chosen beneficiary when you pass away. It helps bypass the lengthy and costly probate process, ensuring your loved ones receive their inheritance quickly and efficiently.

Insuring Your Home in a Living Trust

When you place your home into a living trust, it's crucial to update your home insurance policy to reflect this change in ownership. The trust now owns the home, so it needs to be listed as an "additional insured" entity on your policy. This ensures that both you and the trust are covered in the event of any damage or liability issues. Without this update, you may encounter challenges when trying to make insurance claims.

Coverage Details and Extensions

Standard home insurance policies typically include coverage for your home's structure, your personal belongings, liability protection, and additional living expenses if your home becomes uninhabitable due to a covered disaster. When your home is in a living trust, it's important to ensure that the insurance coverage extends to both you and the trust. This includes any incidents that may occur on the property or off-site, such as accidents involving items you take with you, like a kayak.

Working with Professionals

It's essential to consult with both a knowledgeable insurance agent and an attorney when setting up a living trust and updating your home insurance. They can guide you through the process, ensuring that all the necessary changes are made to your insurance policies. This includes reviewing your coverage regularly to identify any gaps and making sure that all involved parties are adequately protected.

Additional Considerations

While a living trust offers several benefits, it's important to weigh the pros and cons before making a decision. Setting up a living trust can be complex and costly, and it may impact your ability to alter your current mortgage or refinance. Additionally, if the trust only holds your house, your other assets will still go through the probate process. Therefore, it's crucial to consider your specific goals and needs when deciding whether to place your home in a living trust.

Umbrella policies

When a house is placed in a living trust, the trust becomes the owner of the property, not the individual. This means that the individual no longer has an insurable interest in the residence and is no longer covered by their existing insurance.

• Your dog bites a neighbour while they are out for a walk, and they sue you to cover their medical bills, lost wages, and pain and suffering.
• Your child gets into a fight at school and injures another child, and their parents sue you.
• You cause a multi-car accident, and your auto insurance property damage coverage is not high enough to replace all the vehicles involved.
• You send sandwiches to your child's school for a field trip, and several students develop food poisoning and their parents sue you.
• Your teenager throws a party at your house, and someone is arrested for driving under the influence on the way home.

The cost of an umbrella policy depends on factors such as the amount of coverage, the number of homes or cars owned, and the number of household members covered. Most $1 million policies cost $150 to $300 per year, with additional costs for higher coverage amounts.

When placing a house in a living trust, it is important to consult with an insurance professional to ensure that the trust is added to the homeowner's insurance policy and any applicable umbrella policies. The trust should be named as an "additional insured" entity on the insurance policy, with specific wording to ensure coverage.

Personal property insurance

When you have a living trust in place, it is crucial to understand the implications for your personal property insurance. Here are some key considerations:

• Understanding Coverage: Personal property coverage can help pay for the repair or replacement of your belongings after a covered loss, such as fire or theft. It is important to review your policy to understand what perils are covered and any exclusions or limitations.
• Updating Your Policy: When you place your home into a trust, you need to update your insurance policy to include the trust as an "additional insured" entity. This means your policy should reference the name of the trust, and the trust should be named as an additional insured. This ensures that both you and the trust are covered in the event of a claim.
• Coverage Limits: Personal property coverage limits may vary depending on the type of property insurance you have. For example, a homeowners insurance policy may include a certain percentage of your dwelling coverage for personal property, while renters or condo insurance policies offer different coverage options. It is important to assess the value of your personal property and adjust your coverage limits accordingly.
• Exclusions: It is important to note that personal property insurance typically does not cover damage caused by flood water. If you want to protect your belongings from flood damage, you may need to purchase separate flood insurance.
• High-Value Items: If you have expensive jewellery, art, collectibles, or other high-value items, you may need additional coverage or endorsements to adequately protect them. These items may have sub-limits within your policy, so it is important to review your coverage limits and consider scheduling specific items for additional protection.
• Rental Properties: If you are renting a property, your landlord's insurance typically covers the building but not your personal belongings. In this case, you would need a renters insurance policy to provide coverage for your personal property.

In summary, personal property insurance is an essential component of protecting your belongings, especially when you have a living trust in place. By understanding your coverage, updating your policy to include the trust, and assessing your coverage limits and exclusions, you can ensure that your personal property is adequately protected.

Privacy

However, there are some privacy considerations to keep in mind when it comes to insurance. If you have transferred your house into a trust, you need to ensure that the trust is added to your home insurance policy. This is because the trust now owns the home, not you, and if your insurance policy only names you and not the trust, you may encounter difficulties collecting insurance proceeds in the event of a claim.

To maintain privacy, it is recommended that you contact your insurance carrier as soon as possible after transferring your home into your trust. Request that your trust be named as an "additional insured" entity. This will ensure that your insurance coverage continues to protect your privacy, as well as that of your heirs.

It is also important to note that any other assets you transfer into the trust, such as art, jewelry, or vehicles, should also be added to your insurance policy as "named insured" or "additional insured" to ensure they are covered in the event of a claim.

By taking these steps, you can help protect your privacy and ensure that your insurance coverage is aligned with the ownership structure of your assets.

Probate

The probate process involves several steps:

• Appointment of an executor or administrator: If there is a will, an executor is commonly named to initiate and oversee the probate process. If there is no will, an administrator is appointed to fulfil these duties.
• Filing of the will: The executor or administrator files the will with the probate court, initiating the probate process.
• Authentication of the will: The probate court reviews and authenticates the will, proving its validity and accepting it as the true last testament of the deceased.
• Appointment of a personal representative: The court appoints a personal representative, who is responsible for collecting the deceased's property, paying their bills, and distributing any remaining property to the heirs or beneficiaries.
• Inventory and valuation of the estate: The personal representative inventories and estimates the value of the estate's assets, including real estate, financial investments, and personal property.
• Payment of debts and taxes: The executor or administrator uses the estate's assets to pay off any outstanding taxes, debts, and creditors' claims.
• Filing of final income tax returns: The executor or administrator files the deceased's final personal income tax returns.
• Distribution of remaining assets: Once all debts and taxes have been paid, the remaining assets are distributed to the beneficiaries according to the instructions in the will or, in the absence of a will, according to state laws of intestate succession.

The probate process can be complex, time-consuming, and costly, especially if there are disputes among beneficiaries or creditors. It is advisable to consult with a lawyer to navigate this process effectively. Additionally, individuals can minimise probate costs and complexities by having a properly authenticated will or using investment vehicles that do not require probate, such as living trusts or designated beneficiary accounts.

Frequently asked questions