Why Can't My Homeowners Insurance Be in My Trust's Name?
Putting your home in your trust can have real benefits for your estate planning. When it's in your trust, it can pass to your beneficiaries when you die without having to pass through the time and expense of probate. Because trusts are private, you can also avoid having the details of your estate revealed to outsiders. You can also designate someone to take care of it if you end up being incapacitated, but still alive. However, putting your home in a trust can also complicate your insurance.
The key challenge with homeowners insurance and trusts comes from the nature of insurance. When you purchase a homeowners policy, you might think you are insuring your home, but you aren't. You're insuring yourself (or whoever owns the policy) against something bad happening to your home or at your home. When you throw a trust into the mix, you end up muddying the picture of who is insured and who isn't.
Trusts and Liability Insurance
Whether or not your insurance agent will write an insurance policy with your trust named, it might not be a good idea for you. If your trust is the only entity on your policy, you get no protection. For instance, if a guest comes to your house, you make dinner, and you give them food poisoning, you would technically have no liability coverage. The trust would, but you're the one that made the dinner, so you would have no coverage. On the other hand, the insurer might also not want to extend personal liability coverage to the trust, which could end up being a broad grant of protection.
Personal Property Coverage
Writing your trust as the insured party could also interfere with your personal property's coverage. If your trust owns the house, but you own your TV and furniture, those personal property items could end up without coverage if the house burns down. If you want, though, you may be able to write the policy in your own name and have your trust be an "additional insured." This can keep your coverage intact and protect your trust's interests.
Your homeowners insurance isn't the only thing impacted by a trust. It can also cause issues with the title insurance that protects your ownership rights in the property, as well as potentially make it hard for anyone to get title insurance in the future. The examiners who look over properties before issuing title policies may want to see your trust agreement to ensure there aren't any issues that could cloud the title, and this can defeat the trust's ability to protect your privacy. These issues can be handled through the creation of a special nominee partnership, though, although you may want to get an attorney's advice and help.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.