Trust me, adding your trust isn't that simple
You have been working on your estate planning and your attorney or CPA recommends that you place all of your assets in a trust. He reasons that the trust will preserve your assets against lawsuits and against the need to “spend down” to qualify for financial assistance. It also allows your assets to pass to your beneficiaries without going through probate. Before you take the step of putting all of your worldly goods in a trust you need to know how it will affect your personal insurance coverages.
To be eligible for a homeowner’s policy a dwelling must be occupied as a residence by the property owner. Homeowner’s policies give coverage for the listed property. It provides the insureds, as defined in the policy, worldwide coverage for their personal property and for liability. The policy defines an insured as follows:
“You and “your” – the person(s) specifically named and their spouse
Residents of “your” household who are relatives by marriage or blood
Residents of “your” household under the age of 21 who are also in “your” care
Under the more common currently used Homeowner’s form a Trust listed as Named Insured will be protected for damage to the insured premise, personal property at the insured premises, and its liability exposures at that premises. The Trust becomes the “You” in the definition. For any occupants who used to be “insureds” under the policy this can create situations where they are unprotected and exposed since Trusts do not marry, have relatives or children. The occupants of the dwelling would have no liability for their personal activities away from the home. If they are playing ball in the park with their children and a wild throw injures another child or they are walking their dog and it bites someone the policy will not cover them. When the Trust owns the personal property, the occupants would not have coverage while using the Trust’s personal property away from the premises. If their luggage is lost or stolen while on vacation or someone steals their iPad from their table at Panera when they went up to refill their coffee cup, there is no coverage. There are other potential gaps in coverage due to current policy language, such as loss of use, property of others in their care, etc for the same reason - occupants of the Trust owned dwelling are not a “you”.
One way to fill these coverage gaps is to name both the occupants and the trust as named insured, such as Mark and Mary Miller and the Mark and Mary Miller Revocable Trust. This would make everyone an insured and Mark and Mary and their resident relatives would have liability and personal property coverage while still covering the insurable interests of the trust. Sometimes an insurance company will not write both as the named insured so we name Mark and Mary Miller as the named insured and by a separate endorsement add the Mark and Mary Miller Revocable Trust as an additional insured. The coverage for the Trust is limited to their interest in the property and premises liability.
With the newer policy forms, which are starting to be used by more companies, an endorsement can be added to the policy which allows the Trust to be added as named insured, include any Beneficiary or Trustee as an insured while giving back “insured” status to spouses and family members.
Because of the possible gaping holes in your existing coverage, don’t be surprised if your agent has a lot of questions to ask you when you call to add a Trust to your policy. We need to understand who owns what to make sure you have the proper protection. Remember, the auto has its own issues and concerns due to policy language and will also need to be reviewed before making the change.
