Trust or Family Trust Owns Your Home? Beware of Insurance Complications to Avoid Insurance Claim Denials

A recent viral social media post following the California wildfires has brought to light a critical issue: homeowners are finding their insurance claims denied because their properties are held in trusts, yet the trusts are not listed on their insurance policies. This situation emphasizes the importance of ensuring that your homeowners insurance policy accurately reflects your property’s legal ownership to prevent potential claim denials.

Understanding the Issue: Trusts, Trustees, Owners of Property and Named Insureds

When you transfer your home into a trust, the trustee of the trust becomes the legal owner of the property. However, if your homeowners insurance policy still lists you – the individual – as the insured party, a discrepancy arises. Under California Insurance Code § 280, an insurance policy is only valid if the insured has an insurable interest in the property.  If the home is legally owned by a trust, but the trust is not named on the policy, an insurer may argue that the named insured lacks an insurable interest—potentially leading to claim denial.

Steps to Ensure Proper Coverage

Transferring property into a revocable living or family trust may be made for a number of purposes. However, this form of ownership may impact insurance coverage. Therefore, it’s crucial to proactively discuss any change in the ownership form with your insurance agent and update your homeowners insurance policy to reflect the trust’s ownership. This will help prevent potential claim denials.

To prevent such scenarios, homeowners should take the following steps:

• Review Your Policy: Examine your current homeowners insurance policy to understand who is listed as the insured party.
• Inform Your Insurer: Notify your insurance agent and company that your property is held in a trust. Most insurers can accommodate this by adding the trust as an additional insured or by including a trust endorsement on the policy.
• Update Policy Details: Ensure that both the trust and the trustee(s) of the trust are named appropriately on the policy. This alignment confirms that the entity with the insurable interest is covered.
• Regularly Review Coverage: As laws and insurance policies can change, it’s prudent to review your coverage periodically, especially after significant life events or changes in property ownership.