Placing your home in a trust is a common estate planning strategy, especially for those who want to ensure that their home passes to their heirs after their passing. However, there are a few things to know about how this affects homeowners insurance. So, how do you insure a home in a trust? In this article, we’ll discuss everything you need to know.
What Is a Trust?
Let’s start with the basics: what is a trust? A trust is a legal arrangement in which one party, known as the trustor, transfers assets to a trustee, who manages those assets on behalf of the beneficiaries.
In the context of homeownership, a trust may be used to hold title to your home, with the trust beneficiaries having the right to live there.
Many attorney’s and financial advisors will recommend putting your home in a trust. One of the reasons is that without one, your family will likely endure a long and expensive probate court process. Not to mention the stress that comes along with it.
How Does a Trust Affect Homeowners Insurance?
A trust-owned home is not insured in the same way as an individually owned home. For an individually owned home, the owner(s) are listed on the policy as Named Insured’s. They have rights to make policy changes and accept claims payments.
If a home is owned by a trust, but your name and/or your spouses name are the only ones listed as on the policy, you’re going to have a problem in the event of a claim.
How to Insure a Home in a Trust
To insure a home in a trust you’ll need to add the name of the trust to your policy. There are several different ways to do this depending on your insurance carrier. The important thing is that you and the trust are both listed. Some insurance companies will list you as a Named Insured and the trust as an Additional Insured.
Work with your insurance agent to accurately make the changes needed. This will ensure the change is processed correctly. We have clients that forget to tell us about their trust all the time. You’d be shocked at how often this happens. Don’t forget!
If you’ve purchased your homeowners insurance online and have to make the change yourself, it may be time to consider switching to an independent agent. The level of service and expertise you’ll receive can’t be matched by a self-serve online only company.
Don’t Forget Your Umbrella Policy
If you have an Umbrella policy you’ll need to update it with the trust as well. An Umbrella policy extends the liability coverage of your homeowners policy as well as other policies such as auto insurance, motorcycle insurance, boat insurance, landlord insurance and more.
This can be a little more complicated because you may have a home in a trust but not cars or boats. However, it’s important to get it right because there is a lot of money at risk. A typical Umbrella policy has a $1 million coverage limit. You don’t want to forfeit coverage because your trust wasn’t properly endorsed onto the policy.
Why You Need an Umbrella Policy
If you don’t already have an Umbrella policy, we recommend you consult your agent about adding one. Since you now have your home owned and insured in the name of a trust, that trust has liability risk. So, you’ve now opened up the trust for potential lawsuits.
Potential lawsuits for homeowners insurance can be slips, trips and falls, dog bites, pool accidents, defamation and more.
If you’ve spent the time, effort and money to place your home in a trust, it doesn’t take much to add an Umbrella. A $1 million policy typically costs around $200 – $500. Your cost will vary depending on the number of homes you own, cars, boats, motorcycles or recreation vehicles.
Conclusion
Insuring a home owned by a trust may seem complicated, but it doesn’t have to be. By understanding the unique risks presented by trust-owned assets, and working with an experienced insurance agent, you can ensure that your home is adequately protected.
If you’re not sure where to start, reach out to your insurance agent, attorney or financial advisor to discuss your options. With the right guidance and planning, you can rest easy knowing that your trust-owned home is covered.
If you have more questions about how to insure a home in a trust, we would love to help!
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