In this Vlog, Litherland, Kennedy & Associates Attorney Justin M. Kennedy discusses the importance of adding your Living Trust as an additionally insured on your Homeowner, Fire, Earthquake, Flood and Title Insurance policies.
If you have transferred your home or other real estate into your Living Trust, there is another important step you should consider: reviewing the insurance policies connected to that property.
Recent natural disasters, including major fires in California, are an important reminder that homeowners should know exactly how their property is titled and whether their insurance coverage reflects that ownership.
When real estate is transferred from your individual name into a Living Trust, the legal title changes. Depending on the terms of your insurance policy, that change may need to be reported to the insurance carrier.
Failing to update the policy could potentially create complications if you need to make a claim.
Contact Your Property Insurance Carriers
After transferring real estate into your Living Trust, contact the companies that provide insurance on the property. This may include:
- Homeowners insurance
- Fire insurance
- Earthquake insurance
- Flood insurance
- Title insurance
Tell the insurer that the property has been transferred into your Living Trust and ask whether the policy needs to be updated to account for the change in title.
You may update the ownership of the policy into the name of the Trust, or you may be able to add the Trust as an additionally insured upon the policy.
The important point is to make sure the insurance company knows how title to the property is currently held.
Do not assume that transferring the property into your trust automatically updates the insurance policy.
Do Not Forget About Title Insurance
Most property owners are familiar with homeowners, fire, earthquake, and flodd insurance. However, many people do not think about another policy connected to their home: title insurance.
Title insurance is generally purchased with a one-time payment when real estate is acquired. A lender will also typically require a lender’s title insurance policy when a property is purchased or refinanced.
Unlike homeowners insurance, which generally covers certain future events involving the property, title insurance protects against problems with ownership or title that existed before the policy’s effective date.
What Happens to Title Insurance When Property Goes Into a Trust?
When you transfer your property into your Living Trust, you should contact the company that issued your most recent owner’s title insurance policy and ask how the transfer affects your coverage.
Ask whether your existing policy continues to cover the property after the transfer.
Some policies may already provide appropriate protection, while others may require you to purchase an endorsement to recognize the trust or trustee as an insured party.
Why Would Title Insurance Matter?
Title disputes can arise in several ways.
One example is a disagreement over a property boundary.
Imagine that a neighbor believes your fence sits several feet onto their property. Depending on the type of title policy you have and the circumstances of the dispute, title insurance may provide coverage for certain boundary-related claims.
However, the level of risk may vary depending on where the property is located.
Planned Communities
If you live in a planned development with clearly established lot lines, recorded maps, and well-defined property boundaries, a boundary dispute may be less likely.
That does not mean title problems cannot occur, but the boundaries may be easier to identify.
Mountainous or Rural Properties
Properties in mountainous, rural, or less-developed areas can present different concerns.
For example, some older legal descriptions may rely on physical markers to identify property boundaries. A property description might refer to a pipe, stake, tree, rock, or another physical landmark as part of the boundary.
In areas affected by earthquakes, mudslides, erosion, or other natural events, physical markers could move or become difficult to locate. This may contribute to disagreements about where one property ends and another begins.
For clients who own property in areas such as the Santa Cruz Mountains or other open land in California, reviewing title coverage may be particularly worthwhile.
Should You Obtain a New Title Insurance Policy?
Not every transfer into a Living Trust requires a new title insurance policy.
The first step should generally be to contact your current title insurance company and ask whether the existing owner’s policy continues to protect you after the transfer. The terms of the existing policy matter, so coverage should be confirmed directly.
If additional protection is needed, the title company may be able to issue an endorsement.
If the original insurer cannot be reached or the existing policy cannot provide the desired coverage, contact a professional at a title company and ask whether obtaining a new policy is appropriate.
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