Why You Need to Name Your Trust as an Additional Insured on Your Property Insurance

When you place your property in a revocable living trust, you’re taking an important estate planning step. However, many property owners overlook a crucial detail: updating their insurance policies to reflect this change in ownership. Understanding why you need to name your trust as an additional insured is essential for maintaining proper coverage and protecting your assets.

The Legal Framework: Property Ownership and Insurance

When you transfer property into a revocable living trust, the trust becomes the legal owner of the property, even though you maintain control as the trustee. A revocable trust is a see-through entity for tax purposes and does not provide any additional liability protection.  However, placing your property in a trust may create a disconnect as to insurance coverage.  The property’s legal owner (the trust) is now different from you (an individual) if you are the named insured on your insurance policy. Insurance companies are becoming very particular about ensuring that a named insured matches the legal owner of the property.

Why This Matters: The Risk of Denied Claims

An insurance adjuster and/or the insurance company that employs them may deny a claim where there’s a mismatch between the property’s legal owner and the named insured on the policy. There are a number of court decisions upholding their right to do so.  Here’s why:

Insurance policies operate on the principle of insurable interest – you can only insure property in which you have a financial stake. Although it has been widely understood that you are still the beneficial owner of the assets for income tax, estate tax and liability purposes, insurance companies may argue that  when you transfer property to a trust, you technically no longer own it as an individual. Instead, the trust owns it, and you manage it as the trustee.

Many people believe that since they are the trustee of their revocable trust, naming the trust on the policy isn’t necessary. However, insurance companies view the trust as a distinct legal entity, regardless of your role as both grantor and trustee. Thus adding the trust as an additional insured is one method of ensuring that all parties and entities align. It should not increase the cost of your insurance.

Dan Zeiler

dan@zeiler.com

877-597-5900 x134