Hidden Risks When Trusts Own Real Estate

For many people, their home or other real estate holdings are among their most valuable assets. If you’ve placed real estate into a trust—such as a revocable or “living” trust—for estate planning purposes, it’s important to verify that the property is properly insured. This is a key step that is often overlooked, and it could leave you exposed to unnecessary risk.

There are two essential types of insurance you should review when your property is owned by a trust:

1. Property Insurance (Homeowner’s Insurance)

This type of insurance protects your home in case of damage, destruction, or other covered losses. As we’ve seen with devastating fires in places like Louisville, Colorado and Los Angeles, California, the risk of total loss is real. If tragedy strikes, the last thing you want is to discover that your homeowner’s insurance won’t cover the damage.

Here’s the catch: If your homeowner’s insurance is in your personal name, but the property is legally owned by your trust, this mismatch could give your insurer reason to deny your claim.

What should you do? Make sure your property insurance policy names the trust as an insured party. You might also want to explore an umbrella insurance policy for added liability protection that can go above and beyond what your regular homeowner’s policy provides.

2. Title Insurance

Title insurance protects your ownership interest in the property. You typically purchase this insurance when you first buy real estate, and it helps cover hidden title issues such as:

• Deed defects (errors in past transfers)
• Missing signatures from prior owners
• Fraudulent transactions in the property’s history

These kinds of problems can jeopardize your legal ownership, but title insurance steps in to cover this risk.

The twist with trusts: If you originally bought the property in your name, the title insurance policy was issued to you personally. But if you later transferred the property into a trust, that policy might no longer cover the trust as the current owner. That’s why it’s important to check with the title insurance company that issued your policy. They may allow you to purchase an endorsement to add your trust as an insured party.

Get Professional Guidance

The estate planning attorneys at Lyons Gaddis, P.C. can help you navigate your questions about trusts.  A trust may or may not be the right fit for you. If you already have a trust, it’s important to understand how it works and be aware of potential issues.  Contact us if you wish to schedule an appointment.

This publication is designed to provide general information. It does not constitute legal or financial advice.