This is one of those small steps you need to do after you create a trust, but it's a very important step. It's one of those pebbles that can turn into a mountain if you don't do it right. Now, if you've gone through the work of creating your estate plan with a trust, working with your attorney on a revocable living trust and the revocable living trust needs a special needs trust, whatever kind of trust you've created, if we're putting the assets into that trust, it's very important that you make sure you update the insurance policies that go with that asset. The first step most people miss is they forget to actually transfer that property into their trust. But second, the next biggest mistake they make is not doing the insurance piece.

Transferring Ownership of Your Property

So on that first step, of course, if you've created a trust and we're transferring property into it, you don't just need to put the words on the trust you actually have to go to your local property, registering and re-registering your property with the deed into the name of the trust. Just creating a trust doesn't automatically make your house part of that trust.

Updating Your Insurance Policies

Then that second step that we're talking about today, make sure your insurance policies are updated. And what we do is we make sure we name your trust as an uninsured homeowners insurance policy. Now, this is something that you'll get from a lot of your lawyers that you work with and trusts because while we're working on creating the trust and getting all the documents together and funding your trust, this may be something that your attorney doesn't necessarily think of. And if you talk to the right people, talk to your professional insurance agents, and they'll explain to you why it is so important.

Because if the trust owns the house, the trust needs to be on your insurance policy. If not, the trust owns the house and you're on your insurance policy. You created a big hole in the middle of your planning you've left yourself with a lot of liability because if somebody goes to sue you on the basis of the trust, well of the base of the house that's owned by the trust, then you have the problem of the insurance policies in your name, but the house is owned by the trust and you may have defeated the whole purpose of getting an insurance policy.

This is one of the reasons why I always suggest you work with professionals like a professional insurance agent. I've had a few of them as clients over the years, who tell me horror stories of working with people who didn't understand how to make sure to get their assets transferred into the right name for insurance purposes, and they're left with just a total headache as they tried to deal with any issues that may arise down the road. And the insurance agent can't go back and help you after the fact. So if you forget to change it and then you get sued, and your insurance can't cover you can't then go back to I meant to put it in my trust. I just never got around to insurance companies are gonna do it. The court's not going to let you do it. And you could be stuck with a very expensive lawsuit.

What Types of Insurance to Update

So you're probably wondering, what kind of insurance should you change? Well, there are three types of insurance you want to check on for every asset that you add to your trust:

  1. Home Insurance ~ Make sure you've got this taken care of if the trust owns your home, the insurance policy must be in the name of your trust.
  2. Umbrella Policies ~ A lot of people have umbrella policies, and they're a great, great way to protect your assets above and beyond the value of your home. But you want to make sure that that umbrella policy is also in the name of your trust if the trust is the one that owns the home.
  3. Personal Property Insurance ~ Like any other type of insurance, if you have personal property in the house, and the house is owned by the trust, we want to make sure that that insurance policy is updated to reflect the ownership by the trust.

This isn't something that's particularly complicated, but it's one of the again most little things that when you miss creates a mountain of problems. So if you've tried to do it yourself in the past, maybe you're stopped, don't worry about it. My insurance is good, then maybe you're okay. But if you recently created a trust or even if you created a trust while ago, now's a great time to check with your insurance agent to make sure that the insurance policy reflects the proper amount of these assets. If your house if something else is owned by a trust, and it has an insurance policy tied to it, make sure that insurance policy has been updated to reflect the ownership by the trust.

If you have more questions and want to talk further about either creating a trust or some of the issues that can be raised from these trusts, let's set up a Legal Strategy Session, a 15 or 20-minute legal strategy session to go through the different options for you and make sure that your insurance policies and your trusts are all properly drafted and that we have everything in place so that these little pebbles do not become a mountain of a problem.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.