When Life’s Storms Strike: A Broken Arrow Trust Lawyer’s Guide to Protecting Your Estate and Insurance Coverage

In the wake of recent natural disasters across the country, misinformation has spread on social media platforms suggesting that properties held in trusts are not eligible for insurance coverage. This claim is not accurate. While it may be true that coverage gaps can occur if your trust is not properly listed on your homeowner’s insurance, depending on the fine print of your policy and/or the insurance company’s willingness to act in good faith after a weather catastrophe, you can easily maintain comprehensive coverage by taking appropriate steps. (Note: Similar considerations apply to properties held in LLCs, which have their own specific requirements.)

Understanding the Ownership-Insurance Connection

To avoid fraudulent claims, the terms of an insurance policy require that the policy owner has an “insurable interest” in covered property. To monitor this, the policy may require the insured to notify the insurance company if the insured property’s owner-of-record changes. When you transfer your home into a trust, you change the home’s legal owner from yourself to the trust entity. Some policies require no additional actions when you transfer your home to a revocable living trust because the insurance company understands that the person with the insurable interest has not changed. Revocable living trusts are “grantor trusts” – meaning that the individual grantor who created the trust, manages the trust, and benefits from the trust is not legally distinguishable from the trust for tax or asset protection purposes. In contrast, most insurance companies require specific action when you form an irrevocable trust precisely because the parties with the individual interest may have changed. Irrevocable trusts are often formed specifically for asset protection purposes. This can be a confusing distinction for an insurance company’s employee when processing a claim, especially when they’re overwhelmed with claims after a major weather event.

The solution is simple and straightforward: List the trust as an additional insured (or named insured) on your policy. This ensures that both you and the trust have proper coverage, eliminating any discrepancy that might create a coverage gap or a delayed or even denied claim after a natural disaster. Most insurance companies do not charge more for your trust to be listed as an additional insured.

Trust Maintenance Is Ongoing

Another common misconception is that establishing a trust is a one-time event. In reality, estate planning is an ongoing process, and maintaining a current estate plan is just as important as creating it initially.

Many individuals don’t realize that trust maintenance continues throughout their life. It is easy to understand that you need to amend your trust if your goals, needs, or wishes change. It is more common to forget that the terms of your trust only apply to the assets that are owned by it or that pay into it at your death. For your estate plan to work as you intend, your trust must be properly “funded.”  This means that if you buy property, change financial institutions, start new businesses, take out new life insurance policies, etc., you need to do so in a manner that aligns with your estate plan. This isn’t complicated, but it must not be overlooked.

At Littleton Legal, we encourage our clients to formally review their estate plan with us  when major life events happen or at least every five years, whichever occurs first. We further encourage you to individually review your assets annually to confirm that the owner and beneficiary designations align with their intentions. If it has been some time since you reviewed the terms of your trust or the ownership of and/or beneficiary designations of your assets, it is well worth the time it takes to revisit the details and make updates if needed. As you review your estate plan, take the additional step of reaching out to our insurance agent to ensure your policies reflect your trust as an additional insured and that your coverage is intact.

Taking Action to Protect Your Assets

Having helped numerous Oklahoma families protect their assets through comprehensive trust planning, we understand the importance of safeguarding property against unexpected events. If your homeowner’s insurance does not currently list your trust as an additional insured, now is an appropriate time to address this matter. Contact your insurance provider for guidance on adding your trust as an insured party.

If you own a home and it is not currently in a trust, it is likely that you could benefit from more comprehensive estate planning. We can help you explore the benefits of creating and properly funding a revocable living trust to avoid guardianship at your incapacity and probate at your death, while also passing your assets to your intended beneficiaries with tax planning and asset protection in a manner that minimizes cost and conflict. Many of our clients express that they are surprised by how easy we make the process and how much peace of mind they have once their estate plan is in order.

Ready to ensure your property is properly protected? Our firm regularly guides clients through the complexities of estate planning and property ownership, including the critical role insurance plays in asset protection. If you have any questions about your coverage as it relates to your estate plan or estate planning in general, please don’t hesitate to contact our office at (918) 608-1836 or click here to schedule a consultation.