When it comes to estate planning, trust-owned homes are a common tool for avoiding probate and ensuring a smooth transfer of assets. However, they can unintentionally create insurance issues if the property title and insurance policy aren’t aligned. A recent surge in disputes following natural disasters, like the LA fires, has highlighted the importance of properly titling homes and maintaining consistent insurance coverage.

The Risk of Misaligned Titles and Policies

One of the most common problems arises when a home is titled in the name of a trust, but the homeowner fails to update their insurance policy to reflect this ownership structure. For example, if the home is titled under the “Smith Family Trust” but the insurance policy is issued in John Smith’s individual name, this mismatch can lead to a denied or disputed claim.

In a case reported after the LA fires, a homeowner discovered their insurance claim was denied because the property was titled under a trust, yet the insurance policy only listed the individual homeowner as the insured party. The insurer argued that the policyholder did not technically own the property, creating a gray area regarding coverage. While some insurers may still honor the claim under certain circumstances, others may deny it outright, leading to financial loss and protracted legal battles.

Why Adding the Trust or LLC Matters

To prevent these issues, it’s essential to ensure the ownership structure on the title aligns with the insurance policy. If a home is owned by a trust or an LLC, the trust or LLC should be explicitly named as an additional insured on the policy.

An insurance carrier recently clarified, “A claim can potentially be denied if the home is titled in a trust or LLC but the insurance policy is under the individual homeowner’s name. The ownership structure as indicated on the title must match the named insured on the policy to ensure proper coverage. To avoid a dispute, it’s crucial to add the trust or LLC as an additional insured on the policy.”

This small adjustment can make a significant difference in avoiding disputes during what could already be a stressful time.

Issues With Missing or Incorrect Beneficiaries

Another related issue is improper or missing contingent beneficiaries. For example, let’s say a homeowner lists themselves as the primary beneficiary of a life insurance policy intended to pay off the mortgage on a trust-owned property. If the primary beneficiary passes away and no contingent beneficiary is named, the payout could default to the estate rather than the intended trust. This creates unnecessary probate complications and may fail to achieve the homeowner’s estate planning goals.

Similarly, issues can arise with retirement accounts and other assets. For instance, naming the trust as a beneficiary of a 401(k) without consulting an estate planning attorney could trigger adverse tax consequences, depending on the trust type and structure.

Best Practices to Protect Your Home and Estate

To avoid these pitfalls, homeowners should follow these best practices:

1. Align Title and Insurance: Ensure that the named insured on your homeowner’s insurance policy matches the property title. If the title is held in a trust or LLC, add the entity as an additional insured.
2. Review Beneficiary Designations: Regularly review all insurance and financial accounts to ensure primary and contingent beneficiaries are properly named. This includes life insurance, retirement accounts, and annuities.
3. Consult Professionals: Work with an estate planning attorney and insurance agent to confirm that your trust and insurance policies are structured correctly and meet your goals.
4. Update Policies Promptly: Whenever there’s a change in title—such as transferring a home into a trust—notify your insurance provider immediately and request the necessary changes to the policy.
5. Include Contingencies: Always name contingent beneficiaries to avoid complications if the primary beneficiary is unavailable. This ensures your assets are distributed as intended, even in unforeseen circumstances.

Real-Life Consequences of Oversights

To illustrate the importance of these steps, consider the following scenarios:

• Case 1: Denied Insurance Claim
  A homeowner’s property was destroyed in a wildfire. The home was titled in a family trust, but the insurance policy was still in the individual’s name. The insurer denied the claim, stating the trust-owned property wasn’t covered. This forced the homeowner into lengthy legal proceedings and delayed rebuilding efforts.
• Case 2: Estate Tax Headache
  A homeowner named their trust as the beneficiary of their life insurance policy but failed to update contingent beneficiaries. After the homeowner’s passing, the payout went into the estate rather than directly to the trust, incurring unnecessary estate taxes and delaying the distribution to heirs.

Protecting Your Legacy

Proper titling and insurance alignment are small but critical steps in safeguarding your home and ensuring your estate plan functions as intended. By staying proactive and seeking professional advice, you can avoid unnecessary complications, disputes, and financial losses—leaving your loved ones with a well-organized legacy rather than a bureaucratic headache.