While trusts have been around for years, there is an increasing use of them for tax and liability purposes. Only recently has the insurance industry begun to address insurance issues in the personal lines area. The primary problem with using the traditional homeowners policy to insure trusts is that the policy is designed for individuals. The policy language is such that, if the named insured is a trust (particularly one that is not a natural person) there will most likely be major coverage gaps. Since coverage applies largely to "you" (named insured and resident spouse) and "family members," if the trust is not a natural person, then it cannot have a spouse or family members. Also, the homeowners program generally requires that a named insured own AND occupy the dwelling, something not possible if a trust owns the home.

Of foremost concern in any trust situation should be: 1) who owns the property, and 2) who occupies the property. Ownership can be established by asking the client or their attorney to provide documentation. County deed records available from local governmental offices are good sources for this information and the client can easily obtain such records and supply them to the agency. Occupancy can be established via personal interviews. It's important that both the owner(s) and occupant(s) be protected for the appropriate property and liability exposures. Providing proper protection for all parties may require several policies to be in place, especially if occupants of the home are not married or related.

Before coverage can be analyzed it's important to understand a few terms that may pop up when a trust situations exists.

  • Grantor: The person(s) who owns the property establishes the trust. Sometimes called settlor or donor.
  • Trustee: Person who has the power to control the assets of the trust, such as borrow money, sell the property, or lease the property. The trustee can also be an organization such as a bank trust department.
  • Beneficiary: The person(s) who benefits from the creation of the trust at the time of trust payout.

Example: Pat and Chris (a married couple) put their home in the name of the " Anderson Trust." Their son, Paul, administers the trust. At the time of death of both Pat and Chris their daughter, Kelly, receives the assets of the trust. Pat and Chris are the grantors, Paul is the trustee, and Kelly is the beneficiary. Had First National Bank been the one to administer the trust instead of Paul, they would have been trustee.

Coverage Under the ISO Homeowners 1991 Program 

For the 1991 ISO homeowners program (as well as under earlier versions) the options to protect a home in the name of the trust are very limited. ISO rules require that the owner of the home also occupy the home. Since the trust is not a natural person it's technically not possible for the trust to live there. That leaves several options.

Option #1. Write the policy in the name of the trust and the person occupying the home. While not permitted by ISO rules companies often deviate and "call their own shots." Company underwriting permitting, this is the best option since the trust as well as the occupants become "named insureds" and are provided Coverages A-F of the homeowners policy. If there is more than one occupant of the home, and if they are not related, the policy would need to name all non-related/non-married individuals. If that's not possible then separate homeowners policies may be required to protect all occupants. While the creating of a trust and the placement of a home in the name of that trust create no significant insurance hazards, many insurance companies will shy away from this option.

Option #2. Write the policy in the name(s) of the occupants and use the HO 04 41 – Additional Insured endorsement, showing the name of the trust in the endorsement. The person(s) named are provided Coverages A-F, while the trust is provided Coverages A, B, E, and F. (Coverages E and F apply for premises liability only.) Additionally, the trust would be included on any claim check involving Coverage A or B losses, and would receive a copy of the notice of cancellation or non-renewal. Again, since the house is not occupied by the owner (the trust owns it) companies may be reluctant to provide coverage as outlined in this option.

Option #3. Provide a dwelling policy and premises liability for the trust, and use the HO-4 policy for the occupants. Since there is no owner occupancy requirement under the dwelling program, providing such policy naming the trust should not cause any concern on the part of the insurance company. If a premises liability policy isn't available then the trust may need to be covered by a commercial general liability policy. The occupant(s) of the house would need to be protected by way of the HO-4 policy and depending on the relationship of the occupants more than one HO-4 policy may be needed to properly protect all occupants. While the cost for insurance will be slightly higher due to the fact that more than one policy will be in effect, this is likely the "cleanest" way to provide coverage for trust situations. Writing policies as outlined here falls well within ISO rules.

Option #4. Commercial insurance. If, for whatever reason, a homeowners or dwelling policy can't be provided (perhaps due to company underwriting) the only remaining option may be to look to the commercial insurance program. A building and personal property coverage form could be provided for the dwelling itself, and either a personal lines premises liability or commercial general liability policy naming the trust as named insured would fill the liability protection needs of the trust. Writing the HO-4 policy for the occupants (more than one policy may be needed in some situations) would complete the coverage equation. This option also falls well within ISO rules.

A common error

Suppose Pat and Chris put their home in the name of the "Anderson Trust." The homeowners policy is written (contrary to ISO rules) with a named insured reading "Anderson Trust." Pat is on vacation and injures someone with an errant golf ball and gets sued. A few days later his personal property is stolen from his hotel room. Since the "named insured" is the Anderson Trust, Pat has no coverage because he is not the named insured, the spouse of the named insured, or a "family member" of the named insured. Pat needs his own HO-4 policy, or should have been a named insured (in addition to the Anderson Trust) on the HO-3 policy. Again, this points out how both the owner (trust) and occupant(Pat and Chris) need to be protected under appropriate policies.

LLCs, LLPs and FLPs

The establishment of Limited Liability Companies (LLC), Limited Liability Partnerships (LLP), and Family Limited Partnerships (FLPs), is a relatively new twist on home ownership. More and more often consumers are advised by tax and estate planning professionals to establish an LLC, LLP, or FLP and put the house in that name. Most times the insurance implications of this advice are never considered until after the fact when the agent is told, "Here is what I did so please cover me." From a practical standpoint, under the homeowners 1991 program, the advice for insuring a home in the name of a trust would be the same for situations where the house is owned by the LLC, LLP, or FLP. Insurance companies may be more reluctant to provide any coverage under a homeowners policy in these situations. The best avenue for coverage may be to use a dwelling policy covering the house and the HO-4 policy to protect the occupants.

Coverage Under the ISO Homeowners 2000 Program 

Recognizing the pitfalls of homes in the name of a trust, ISO introduced a new endorsement, HO 05 43 — Residence Held In Trust, in their homeowners 2000 program. The program is approved in Florida for use effective 12/1/01, with each state having its own effective date. While all of the cautions and options outlined above in the homeowners 1991 program synopsis still exist, the new endorsement offers some significant relief for homes in the name of a trust. It's worth noting that the endorsement applies only for homes in the name of a trust; and homes owned by the LLC, LLP, or FLP would not be eligible for this endorsement. Following are the highlights of the endorsement.

Eligibility

A home in the name of a trust is eligible for a homeowners policy if all of the following conditions are met:

  • Legal title to the residence is held solely by the trust. Condominiums are eligible.
  • The trustee, beneficiary, and/or grantor regularly reside in the residence.
  • The residence premises is used exclusively for residential purposes.

Named insured

The named insured on the policy must be the trust and trustee(s)

Occupancy

As stated in the "eligibility" section above, the trustee, beneficiary, and/or grantor must regularly reside in the residence. Otherwise a dwelling policy or commercial insurance must be used.

Who is an insured

Coverage depends on who occupies the home and can be summarized as follows:

Who occupies Who is an insured
Trustee and grantor Trustee as named insured
Trust as named insured
Grantor, if related to trustee (1)
Trustee and beneficiary Trustee as named insured
Trust as named insured
Beneficiary, if related to trustee (2)
Grantor and/or beneficiary
(Trustee not an occupant)
Trust as named insured
Trustee as named insured
Grantor and/or beneficiary by endorsement (3)

Notes:

(1) If grantor not related use endorsement HO 05 43 and add grantor
(2) If beneficiary not related use endorsement HO 05 43 and add beneficiary
(3) Use endorsement HO 05 43 listing grantor and/or beneficiary

Coverage provided

The trust:

* Coverages A-F
* Coverages E & F apply for exposures usual to ownership and use of property

Trustee/grantor/beneficiary who reside on premises

* Coverages C, D, E, and F
* Trustee not covered for acts and decisions or failing to act in trust administration
* If trustee does not reside on the premises Coverages E and F apply only for claims arising out of the ownership, maintenance, or use of the residence premises. The trustee would need his/her own HO-4 policy to cover personal liability exposures.

Premium charges. There is a premium charge in situations where the HO 05 43 endorsement is warranted. The actual premium charge varies according to who occupies the house and who is named in the schedule. 

Umbrella Issues 

It's common to find personal umbrella policies in place for customers who put homes in the name of a trust. It's important to make sure that the appropriate underlying policies are in place so there is no gap in coverage under the umbrella policy. It becomes critical to analyze who is an insured under each policy and make certain that policies provide the appropriate coverage.

Also of concern would be the trust itself. Since the trust is the one with assets, it may be the likely target of any lawsuit. Whether an insurance company would be willing to cover a trust under a personal umbrella would be their own underwriting decision. At least one umbrella carrier has introduced a personal umbrella endorsement allowing a trust to be an insured. Absent that option the commercial insurance program may be the only remaining choice.

Summary 

It's an understatement to say that many times consumers don't have a good grip on ownership of a home. Agents should use special care in determining ownership and occupancy. Who owns the property and who is living there can be unclear at the start and can change quickly. Non-related people can be occupying the home, sometimes making necessary the need for numerous policies. In the end the trust, trustee, grantor, beneficiary, and occupants need to be "an insured" under a policy of some type.

Make sure to contact your local Armstrong Insurance agent for a quote on Auto, Home or Commercial insurance policies anywhere in Florida.