As a homeowner, you may wonder if you need a Trust or LLC Endorsement. First, let’s define these terms. A Trust is a fiduciary arrangement that lets a third party, or trustees, hold assets on behalf of a beneficiary or beneficiaries. An LLC, also known as a Limited Liability Company, is a business structure that limits liability of the owners. So, which one should you include on your Homeowners Insurance policy?
A real estate property or a residential home can be put under the ownership of a Trust or an LLC. This is what makes it relevant to your Homeowners Insurance.
Why Put Your Home in a Trust or LLC?
People choose to put their homes in a Trust or LLC for a few different reasons.
AÂ House in a Trust:
- Avoids the complicated process in probate court
- Saves on estate taxes
- Protects the house from creditor attacks
Your Home in an LLC:
- Avoids taxation
- Provides Personal Asset Protection
- Provides Quick Settlement of Estate
- Reduces Estate Taxes
If you have not yet put your home in an LLC, do some more research and talk to a licensed professional who specializes in real estate.
Properly Insuring Your House When it’s in a Trust or LLC
If you already have your house in a Trust or LLC, you’ll need protection beyond what your standard Homeowners Insurance probably offers. Proper structuring of the insurance policy can help you avoid disastrous gaps in coverage. Not carrying the correct coverage could result in a whole mess of problems if you need to file a Liability or Property claim.
Consider these scenarios:
Scenario 1: LLC
A family owns a ten-acre lot and has it divided into three lots. Two lots are family owned and one is owned by their LLC. That one is rented out. The ten-acre lot is insured under a Homeowners policy, but the LLC isn’t listed as a named insured and only the family members were listed. A gardener was hired by a family member and somehow fell and broke his arm on the LLC owned property. He then sues the family and the LLC. The family and their assets are covered under their Homeowners policy. However, the LLC was not protected under this policy. The family now has to pay out of pocket to hire defense lawyers for the LLC because the insurance carrier will not pay for the LLC with ownership interest.
Scenario 2: Trust
A couple, William and Thuy, have a $3 million home. They have been advised by their attorney to move their $2 million worth of valuable assets and their house into a Trust in their name. They can still live in the house, but all property inside the house and the dwelling itself is now deeded to the Trust. William’s brother, Marshall, is named as the Trustee. Nothing was changed on their Homeowners Insurance policy, leaving the insured listed as William and Thuy.
Sometime after this transfer of ownership happens, the clothes dryer caught fire and the house burned down. The couple make a claim with their Homeowners Insurance carrier. The adjuster is ready to handover the check for $5 million check, but he needs to see a copy of the title of the house first. As soon as he sees that the title is in the name or Marshall as the trustee of the Trust, he rips up the check. The Homeowners Insurance policy only lists the insured as William and Thuy. Marshall was not on this list. All of their assets and the house had been completely uninsured with the transfer of ownership to the Trust. In this unfortunate scenario, the only compensation that their insurance will probably cover is the additional expense to rent another full-furnished dwelling.
Conclusion
The moral of these stories is to make sure that your Homeowners Insurance policy is structured correctly if you have your house in a Trust or LLC. The way to do this is to get a Trust Endorsement or LLC Endorsement added onto your Homeowners policy. Make sure that the Trust and LLC is listed as an insured entity.
Getting an Endorsement for Your Homeowners Insurance Policy
Homeowners Insurance insures individuals, not entities like a LLC or Trust. In the Homeowners Insurance policy “the insured†refers to these individuals, or real people, not businesses or organizations.
Trust Endorsement
The Trust Endorsement is called a Residence Held in Trust Endorsement (HO 05 43). Having this endorsement will name the Trustee and Trust as the named insured. The owners who still reside in the home are shown in the Schedule section at the top of the Residence Held in Trust form. Other members of the household are usually included as well.
Who is protected under the Trust Endorsement?
Trust- Trustee
- Beneficiaries
- Residence
- Members of household
There are additional qualifications for coverage. Each one needs to be considered on an individual basis. If you’re looking to get a Residence Held in Trust Endorsement, talk to an AIS agent to learn more about the coverage tailored to your specific situation.
LLC Endorsement
If you put your house under LLC ownership, you may find it difficult to find an insurance company that is willing to cover the residential house when it is deeded through an LLC. This is because it is now considered to be under a Business policy.
Homeowners Insurance covers individuals, while Business Insurance covers entities engaged in business activities. A home under the LLC does not meet either of these qualifications. An LLC Endorsement added on to your Homeowners Insurance policy will allow for entities like these to be recognized under Named Insured. With an LLC or Trust Endorsement, “the insured†recognizes the entity and LLC members (owners). It protects both the LLC and its members.
What does the LLC Endorsement cover?
The LLC Endorsement covers the dwelling, other structures located on the property and medical payments to others.
Endorsement Eligibility:
The LLC is the single owner of the dwelling and it will be used exclusively for private residential purposes- There is no business activity conducted on its premises, other than occasionally renting out the dwelling
- The LLC is owned by managers and members who are actual people, not other entities
- The LLC was created purely for estate planning or as a tax shelter
Who is covered under the LLC Endorsement?
- LLC
- LLC Member or Partner of a Limited Partnership
- Beneficiaries
- Occupants of the residence
As with the Trust Endorsement, the LLC Endorsement is also considered on an individual basis. To see what you would be covered for, you’ll need to talk to an AIS agent to discuss your scenario.
Speak with an AIS Insurance Specialist
If this sounds like what you need for protecting your residence owned by an LLC or Trust, contact AIS for more information. Don’t be like the couple in the scenario above. Make sure that you are covered in the event that a liability or property claim needs to be made. Getting an Endorsement is the way to go if you have chosen this route of putting your house in a Trust or LLC.
This content is offered for educational purposes only and does not represent contractual agreements. It should not replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. The definitions, terms and coverage in a given policy may be different than those suggested here. Such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.
