For many individuals and families, it’s become increasingly popular to place the ownership of personal assets like a primary home into a trust. There are a number of benefits in doing so, like saving on estate taxes or avoiding a lengthy probate process for your family after you pass on. Despite the fact that this has become a common practice, many individuals overlook the various insurance implications that result.
We frequently see that, without proper guidance, the entities themselves (the trusts) are inadequately insured, inappropriately insured, or not insured at all. These issues aren’t typically caught until it’s far too late, a claim has already taken place and the poorly protected asset was lost. While most people have the best intentions when establishing a trust, it’s important to work with a professional to confirm that insurance policies are built to mirror the structure of the trust and coverage is extended across all necessary parties.
Typically, insurance on property that has been put in trust can be handled one of two ways: the trust can either be the “named insured” on the policy, or it can be designated as the “additional insured or additional interest” on the policy of the individual(s) who established and funded the trust. There are advantages and disadvantages to both options, which is why it’s important to understand exactly how you’d like your trust to work before implementing your insurance policies.
When establishing and funding a trust, a property owner will transfer the title of their assets from their individual name to the name of the trust itself. In doing this, the trust is created as a separate entity from the owner/beneficiary.
If the trust is the “named insured” on the policy, there is a more complete separation between the trust and beneficial owners. This would help streamline the process of transferring the assets in the trust to the successor trustee after the beneficial owners pass on. To keep this ownership consistent, the trust should be responsible for paying the insurance premium. In this particular scenario, the beneficial owners may need to purchase renters insurance during the duration of their time living in the property to ensure their personal belongings are properly protected, as well as personal liability insurance if this is not already covered under another policy. Why is this exactly? The trust is now a separate entity, and while the beneficial owners are linked to the trust, the trust’s insurance policy covers only the trust itself as the true owner of the assets in question.
When a trust is named as an “additional insured or additional interest” on the policy covering the assets, the beneficial owners remain directly insured and should not need a separate personal liability or renters policy at that time. However, because there is not a definitive separation between the beneficiaries and the trust, successor Trustees may find it more difficult to conduct business on the owner’s behalf when needed.
There are many benefits of holding assets in a trust but it is best practice to work with your professional advisors to ensure all of the details are set up correctly.
Dave Nommensen
Vice President | Personal Insurance
Dave is a Vice President in the Personal Insurance division at RogersGray. Living and residing on Cape Cod, Dave serves many of RG’s finest clients in the Upper Cape region and on Martha’s Vineyard. Dave’s approach to working with a new client is simple… he listens.
Dave believes that as a dedicated insurance advisor it is imperative to take the time to listen to client’s concerns and to what is important to them in order to properly safeguard their property and family. Dave resides in Cotuit with his wife and their children. You can connect with Dave on LinkedIn or by email.
