An Insurance Must: Naming a Revocable Living Trust as an Insured
The California wildfires of early 2025 brought insurance to the forefront, highlighting the urgency of keeping policies current and aligned with property ownership. They also served as an important reminder for homeowners about an estate planning strategy that is easily overlooked.
Homeowners who title their property in a revocable living trust – a common strategy to bypass probate and streamline asset distribution – should make it a priority to address potential insurance complications. When properties are transferred to trusts but homeowner policies remain in the individual’s name, discrepancies can arise that may jeopardize claim validity, liability coverage and the overall protection of the trust and its trustees and beneficiaries. Being proactive and informed about these intricacies is essential for safeguarding against financial risk and ensuring comprehensive coverage.
Impact on Insurance Policies and Homeowners
Maintaining adequate insurance coverage has become a priority, specifically for many Californians and Floridians. Homeowners are urged to review and update their policies to ensure they remain protected in the event they need to file a claim. However, complexities can arise when properties are titled under a revocable living trust. While this estate planning strategy helps avoid probate and ensures seamless asset transfer, it can lead to issues if insurance policies are not updated to reflect the trust as an additional insured. These complications include:
- Claim denial due to ownership mismatch: If the trust, as the legal owner of the property, is not listed in the property and casualty insurance policy, insurers may argue that the trust is not covered under the policy.
- Liability coverage exclusion: The liability coverage offered under a homeowner’s policy may not extend to the trust if the trust is not listed as an additional insured. In the event of an injury on the property, this exclusion could expose the trust, trustee and beneficiaries to financial risk.
- Policy cancellation: Transferring ownership of the property from an individual to a trust could be considered a material change by the insurer. If this transfer is not disclosed, insurers may cancel the homeowner’s policy upon discovery.
To address these risks, homeowners should notify their insurance agents of ownership changes, confirm personal property coverage and ensure umbrella policies align with updated designations. Listing the trust as an additional insured – not merely an additional interest – is crucial for comprehensive coverage.
Broad Industry Implications
The fires are reshaping the insurance market:
- Rising premiums: Increased risks may lead to higher premiums.
- Limited coverage options: Insurance carriers have begun withdrawing specific lines of coverage from high-risk areas, leaving many reliant on fallback plans like the California FAIR Plan or Citizens Property Insurance in Florida.
- Property value concerns: Elevated costs and coverage difficulties may reduce property affordability and values.
The California wildfires underscore the need for strategic planning and proactive communication between homeowners and insurers, particularly in vulnerable regions. If you have any uncertainty regarding your insurance coverage or need further assistance, please reach out to your Altair team.
The material shown is for educational purposes only and should not be construed as accounting, investment, legal or tax advice. View Altair Advisers’ Form ADV Part 2A and Form CRS for business practices and conflicts at https://altairadvisers.com/disclosures/. All investments are subject to the risk of loss.