Opinion: Trust agreements, homeownership insurance should work together

Bryant Young

The informed readers of the Springfield Business Journal likely don’t need an explanation of the importance of homeowners insurance and why one should never go without. Instead, I would like to shine some light on the symbiotic relationship between homeowners insurance and trust agreements.

Quoting Andy Peebles, estate planning attorney with Carnahan Evans PC, a trust agreement is a common tool implemented as part of a solid estate plan, ensuring the smooth transfer of assets to beneficiaries while minimizing potential complications. Homeowners insurance is a bundle of insurance protections, providing coverage for an insured’s home, property, personal belongings and other assets in the home. Together, trust agreements and homeowners insurance work in tandem to protect families. However, to function properly, each must reflect the other, as miscommunications can lead to issues.

Who is covered?
The homeowners insurance policy is a carefully worded contract, particularly when it comes to who is insured by the policy. You, your spouse and your household family members are likely listed as insured parties on the policy. However, when legal title to your home is transferred into the name of a trust agreement, you no longer have any insurable interest in the home itself, as you are no longer the deeded owner – the trust agreement is.

When disaster strikes
Allow me to paint a picture: A dangerous windstorm blows through the Ozarks, destroying the Smith family home in Springfield while they are away on vacation. A call to their insurance agent starts the claim process, after which the insurance company begins helping the Smiths recover financially from the loss. During the claim investigation, the claims adjuster learns that the Smiths made the responsible estate planning decision to deed their home to their newly created revocable trust agreement.

Herein lies the potential issue: If the Smiths did not inform their insurance agent and/or the insurance company about the trust’s ownership of the home, there could be a gap in coverage from the homeowners insurance. Essentially, the home is owned by the trust and the trust is not insured on the policy unless it is specifically added.

Details matter
An insurance policy should be written in the name of the owner of the home, as the owner has an insurable interest in that home.

If a homeowners policy protecting a home owned by a trust does not have the trust included on the policy, usually as an additional named insured, an insurer could deny coverage for the damage to your home after a claim.

But what about my personal property? My toaster isn’t owned by the trust. For this reason, you (your spouse and resident family members) are usually still listed on the policy as named insured, so you can still collect the other protections offered by the homeowners policy. This includes your personal property and liability coverages.

Homeowners who have created a trust agreement as part of their estate plan should consult their attorney and their insurance agent to ensure no coverage issues arise. As each insurance company could approach listing the trust on your homeowners policy differently, lean on your agent’s expertise to ensure the policy is properly written.

Long story short, if you have a trust that owns your home, call your insurance agent to avoid potential further disaster during claims time.

Bryant Young is the director of business development for Insurors of the Ozarks. He can be reached at bryant@insureozarks.com.