In the aftermath of the Pacific Palisades fires, we received many inquiries from clients who've heard stories about the potential for issues with their homeowner's insurance when their home had been transferred to a trust.
What follows is a practical discussion of the key distinctions affecting coverage, and the safest approach for most situations.
Most Revocable Trust Situations Should Still Have Coverage
Although the terms of the policy are key here, I do not believe an insurance company will be able to successfully avoid paying a claim if someone's home is in their own revocable trust, especially when the policyowners are also the trustees of that trust. There is established case law that addressed the issue when a couple who transferred their home to a revocable trust were covered when it was later destroyed by fire, providing that: "To collect on an insurance policy, the person insured must have an insurable interest at the time of the insurance contract and at the time of the loss" and "Title is not the touchstone of an insurable interest. Persons have an insurable interest if they receive a benefit from that property or will suffer a loss by reason of its destruction."
Policyowners with their property in their own revocable trust certainly meet the standard of an insurable interest.
Irrevocable Trusts May Me More Vulnerable to Coverage Issues
It might get more challenging, however, in the case of an IRREVOCABLE trust, which is separate and distinct legal entity where the property has been entirely given away in that trust to people other than the policyowners, or one that has trustees that are not the same individuals as the policyowners.
The Best Approach for Most Situations: Name the Trust as Additional Insured
Insurance companies are bleeding right now, and unfortunately may become difficult with processing claims or may try to weasel out altogether. Again, I would expect that an insurance company would not be successful doing so with most revocable trust situations, although it may get more tricky with irrevocable trusts.
To avoid any potential hassle entirely, have the trust named as additional insured. That is the best approach. It should not affect your premium. If the insurance company won't do that, confirm that the policy terms do not include an exclusion for a home transferred to a revocable trust. If it does, find another insurance carrier if possible.
コメント