Is your property title in a trust? Many policyholders, their attorneys, and insurance agents fail to recognize the significant implications of failing to properly list the people and entities when insuring properties that involve a trust. Derek Chaiken warned about this issue in “Trust or Family Trust Owns Your Home? Beware of Insurance Complications to Avoid Insurance Claim Denials.”
I have unfortunately seen this mistake and its issues raised too many times. A family dutifully meets with an estate planning attorney, executes a revocable living trust, and deeds the home into the trust. Everyone feels responsible and organized. Then a loss occurs, and the insurance company raises the question that should never have been in dispute: who exactly is the insured?
Insurance policies are contracts built on defined terms. Those definitions matter. When title is transferred to a revocable trust, the trust becomes the legal owner of the property. If the homeowners policy still lists only John and Mary Smith as individuals, but the deed shows “John Smith, Trustee of the John Smith Revocable Trust dated January 1, 2024,” there is now a disconnect between legal ownership and the named insured. If the insurance company adjuster learns of this, the disconnect can become fertile ground for delay, denial, or, at a minimum, unnecessary friction in the claims process.
United Policyholders has done an excellent job educating consumers about this issue. 1 Their guidance is practical: Notify the insurer and insurance agent when title is transferred to a trust and make sure the policy reflects the new ownership. That sounds simple, but it is surprising how often this step is skipped. Estate planning and real estate lawyers assume the insurance agent will handle it. Agents assume the lawyer explained the insurance consequences. The homeowner assumes everyone else took care of it. Assumptions are dangerous things in insurance.
IRMI’s discussion on this topic goes deeper into the structural problem within standard homeowners forms. 2 Homeowners policies were drafted with natural persons in mind. The definitions of “you” and “insured” often contemplate individuals and resident relatives, not legal entities. A trust is not a living, breathing person. It is a legal relationship. If the policy is written solely in the trust’s name, certain personal coverages may be unintentionally restricted. If it is written solely in the name of the individual, the carrier may argue that the named insured does not hold legal title and therefore lacks an insurable interest in the dwelling. The solution is to list people and entities precisely, in accordance with the policy’s definitions, with due regard for excess and umbrella policies.
The Rough Notes article adds another layer by explaining the exposure identification and underwriting remedies available to agents and carriers. 3 The cleanest approach in many situations is to list the individual in both capacities. For example, “John Smith, individually, and John Smith, as Trustee of the John Smith Revocable Trust dated January 1, 2024.” That wording recognizes the human being who occupies the home and the legal entity that owns it. Some carriers use specific endorsements designed for residences held in trust. Others accomplish the same goal by adding the trust as an additional insured. The exact mechanism may vary, but the objective is to align parties and policy language to avoid gaps in coverage.
From my perspective, I keep seeing these “who is insured” issues arise way too frequently. People create revocable trusts for the responsible reasons of probate avoidance, continuity of management, and orderly succession. They do not do it to reduce insurance coverage or create technical gaps in their insurance portfolio. Insurance should follow the risk. If the same family lives in the same house and pays the same premium, a paperwork change in the county recorder’s office should not create a forfeiture. But my personal view is not my legal worry. In many states, these technical issues and failures about listing people and entities correctly on the insurance paperwork can be devastating.
There are practical steps every policyholder should take. First, confirm how the title is currently held. Second, compare the deed to the declarations page of the policy. Third, notify the insurance agent and carrier in writing if the property is titled in a trust, and request written confirmation that the policy properly reflects both the trust’s ownership interest and all individuals occupying the structure, including personal exposures. Fourth, review the policy definitions of “insured” and “you” to ensure that personal property and liability coverages extend as intended.
Lawyers and wealth advisors who create or suggest these trusts should also be candid with clients about the insurance implications. Not every trust arrangement is identical. Revocable living trusts are generally easier to accommodate within standard homeowners underwriting guidelines. Irrevocable trusts, LLC ownership, or non-owner occupancy can raise different eligibility and coverage questions. Lawyers and advisors need to warn clients about these issues and make certain that their clients are with a knowledgeable agent who knows how to handle these issues.
This issue may sound like insurance nitpicking. However, these insurance coverage gaps arise when legal title, occupancy, and policy wording don’t align. Needless disputes are born. Closing that gap before a loss is far easier than litigating it afterward.
Thought For The Day
“An ounce of prevention is worth a pound of cure.”
Benjamin Franklin
1 “How to make sure a home held in a trust is properly insured.” United Policyholders.
2 “When a Who Is Actually a What: Properly Insuring Residences Owned by a Trust, LLC or Other Entity.” IRMI (Apr. 9, 2021).
3 “Trusts, Trustees, Exposure Identification and Insurance Remedies.” Rough Notes (Feb. 27, 2018).