Does Your Homeowner’s Insurer Know Your Home Is In Your Trust (Episode 309)

Did you know that putting your home in a trust can impact your homeowner's insurance? In our latest episode, we dive into the crucial question: Does your insurer know your home is in your trust? Tune in to Episode 309 for insights that could save you from potential pitfalls!

Episode Transcript

Speaker 1 (00:30):
Well, good afternoon, Michigan Anders. It's Tuesday, December third, twenty
twenty four, and of course this is Tuesday with Tom,
Michigan's only weekly Internet show where we do answer your
questions about a state planning and a state settlement in Michigan.
I'm your host, Tom Doyle, a state planning attorney, lifelong

(00:52):
Michigan resident, and ambassador for all things good in this
great state of Michigan. Welcome today's program on a pretty
cold and snowy December day. Last episode Understanding Digital Asset

(01:14):
reporting requirements. If you have digital assets such as bitcoin,
I encourage you listen to last week's episode because you
want to make sure that you are complying with the
IRS rules and regulations about what you do have to
report relative to digital assets such as bitcoin. So again,

(01:40):
if you have some bitcoin or other digital monetary assets,
I encourage you listen to the last episode to make
sure that you understand what your reporting requirements are today's show.
We have a lot of clients who have a trust.

(02:02):
Those clients, we're always talking to them, and many attorneys
talk to the clients when they have a trust about
the importance of funding their trust and a major asset
that most clients have relative to their estate is going
to be their home, and so part of the funding
process is normally looking at retitling if you will, the

(02:27):
home into the trust. Well, today's topic is does your
homeowners insurer know your home is in your trust? But
please remember what I'm about to discuss during the program is,
as always for educational purposes only. It is not intended

(02:49):
to be legal advice. You need to work with your
attorney to determine what is appropriate for you and your
estate plan. Does your homeowners ensurer know your home is

(03:11):
in your trust? So you've had a trust prepared for you, you're
looking at the whole funding process. Part of that funding
process has to do with your home and how you
would go about retitling the home into the trust. That
might be done in one of a couple ways. One
you might have had a deed prepared that simply conveyed

(03:34):
the home to the trust, so that effectively, once that
deed was done, your trust owns that home. Alternatively, you
might have had what's known as a ladybird deed prepared.
The ladybird deed is essentially like making the trust the

(03:57):
beneficiary on your home. You still own it. It is
still in your name, but by virtue of the Ladybird deed,
the home will pass to the trust upon your death.
So those are the two ways, either having the property

(04:17):
deeded to the trust now or having a Ladybird deed
that's going to deed the property to the trust upon
your death. In either case, with your home, you need
to stop and think about homeowner's insurance. Once that trust
owns the home, whether it's now or upon your death,

(04:42):
it is no longer your home. And if your homeowner's
insurance only covers a home that you own, effectively your
home is now uninsured. So if you've got a home
own policy that simply covers your home that you own

(05:04):
and you need it to the trust today, you no
longer own that home, and your homeowner's insurance will likely
take the view that therefore, your homeowner's insurance no longer
covers a home or a Ladybird deed once you die

(05:26):
and that home is now owned by the trust. If
your homeowner's insurance was just covering you, then in your
interest in the home, your home is now uninsured. So
it's important to make sure that there is no lapse

(05:47):
in coverage of your insurance. There was a case over
the last several years where essentially somebody had put their
home into the trust, their home burnt down, they had
not notified their homeowner's insurance that the trust now owned
the home, and the insurance company took the position that said, hey,

(06:12):
we only ensured a home that you owned. We did
not ensure a home that the trust owned, and since
the trust owned your home when it burned down, we
do not cover the loss. That was litigated and the
insurance company won. What does that mean then, if you

(06:36):
deed the home to your trust now, or you use
a lady bird deed that's going to convey your home
to the trust upon your death, in order to make
sure that there is no lapse in coverage, you need
to notify your homeowner's insurer to add the trust as

(07:00):
an additional named insured. That's all you have to do.
Call your agent, your homeowner's insurance agent, tell them that
you're either deeded the property to trust now, or perhaps
they need to know what the statuses of the lady
bird deed, But in any event, what you want them
to do is add the trust as an additional named insured.

(07:27):
By doing that if you have a Ladybird deed and
you die and now the trust owns your home, it
continues to still be insured. Or if you've conveyed the
property to the trust now and you have the trust
as an additional named ensured, it will be covered. So

(07:48):
important make sure that your homeowners Ensure knows that your
home is in your trust. Now I've been talking about
your home, I haven't been talking about real estate that
is not your home. And the reason it's important is

(08:11):
that if it's your home and there's a mortgage on
the home, you might have a do on sale clause
in your mortgage, but that do on sale clause is
not going to be effective if you in fact transfer
the home into a revocable living trust that you own. However,

(08:35):
if you have other real estate, let's say a cottage,
and you have a mortgage on that cottage or perhaps
a home equity loan on that cottage, now you have
to take a step back because if you have real
estate that is not your home, and use that cottage

(08:59):
as an example, well, you've got a cottage, you don't
have a mortgage, you don't have home equity, you own
it outright. Then that cottage as well. If you transfer
it to your trust now or you use a ladybird
that's going to transfer the cottage to your trust at
the time of your death, you need to notify your

(09:20):
homeowner's insurer and have them add the trust as an
additional named insured for the very same reason that I
talked a couple minutes ago about your home, to make
sure it's ensured. The complication with real estate that is

(09:41):
not your home. Say again, that cottage that you have
a mortgage on or a home equity loan on, you
likely in that mortgage or in that home equity loan
have a due on sales clause, and under the terms
of that do on sales clause. Normally, if you transfer

(10:04):
your ownership of that cottage to your trust your mortgage company,
your risk in that is that the mortgage company is
going to say, hey, that violates or doesn't violate. That
brings into effect your due on sale clause, which means

(10:25):
now you have to pay the mortgage off in full.
So if you have a mortgage and it has a
due on sale clause, or you have a home equity
loan and it has a due on sale clause, again
this is non home. It's not your home, it's other
real estates that you have. You can confirm with your

(10:49):
mortgage company or home equity company that placing the cottage
in this case into the trust does it or does
it not call into play the due on sales clause.
And if they put in writing that you can transfer
your cottage to your trust and that is not going

(11:13):
to be calling up the due on sales clause, meaning
they're not going to insist that the mortgage gets paid
off in that case, then again you would look at
notifying your homeowner's insurer to add the trust as an
additional named insured. However, if the due on sales clause

(11:34):
is not waived, the complication is this, if the due
on sale clause is not waived and you notify your
homeowner's insurer to add the trust as an additional named ensured,
in some situations that information will be provided to buy

(12:00):
your homeowner's insurer to the mortgage company because periodically the
mortgage company wants to be updated to make sure that
there's adequate insurance on the property so that the mortgage
would be paid. So if you were to contact your

(12:23):
homeowner's insurer and have that cottage if you will have
the trust added as an additional named insured relative to
the cottage, it's possible that that information might get back
to your mortgage company, and if it gets back to

(12:45):
your mortgage company, then your due on sales clause can
be a problem for you. So one approach that many
clients are going to take is if, again we're talking
about not your home, we're talking about other Michigan real estate.
If your mortgage or home equity loan has a due

(13:08):
on sales clause and the mortgage holder or the loanholder
is not willing to waive the due on sales clause,
then you've got to make a choice. And the choice
that many clients are going to make is to say, Okay,
I'm not going to notify the insurer to add the

(13:30):
trust as an additional named insured because I don't want
that information to go to the mortgage company, because I
don't want them to call upon making me pay the
balance in full under the due on sales clause. So
I'm just not going to tell them. Now we're going
to wait. Well, if you do that, you need to

(13:54):
make sure now that your successor trustee no that as
soon as they learn that you have died that they
need to contact homeowners insurer asap to add the trust

(14:16):
as an insured on a policy. So now you're really
saying to your successive trustee, if something happens to me
upon my death, here's the information on the homeowners insurance.
You need to contact them asap to make sure that
we have coverage on the home. Because what you don't

(14:38):
want to do is, in that case you've died, the
home is now not insured and a fire breaks out
and the home is lost. So it's going to be
important if you make that decision. If you decide, because
of concerns about a do on sale clim not to

(15:02):
notify your homeowner's insurer, then you need to make sure
that your successor trustee knows who your insurer is, knows
that upon your death, they need to be immediately contacting
the insurance company to make sure that your covered. So, again,

(15:24):
does your homeowners' insurance know your home is in your trust.
You need to look at that and decide if the
home is deeded to the trust now or a ladybird
deed on your home. Again, we're talking about your home.
Then make sure that the homeowner's ensure adds a trust
is an additional lane insured. If it's not your home

(15:46):
and it's other Michigan real estate, you need to go
through a little bit further analysis on that to determine
whether or not you're going to notify the homeowner's insurer. Now,

(16:24):
of course, if you're working with our office, we'll be
happy to talk to you about our recommendations relative to
notifying your homeowner's insurance and going through that analysis with you.
If it's property that is not your home, and of
course too, amand and I would be honored to have
the opportunity to help you protect your loved ones by

(16:46):
putting together an estate plan or amending a current plan,
or assisting you in settling and estate. Simply head on
over to our website that is going to be doylelowpc
dot com. There you're going to find information on how
you can go about setting up a consultation with this.

(17:10):
It might be a virtual consultation, it might be in
either our Eslansing location or our Grand Rapids headquarters, whatever
it is that's going to make sense for you in
having that consultation. All of that information is going to
be available to you at the website. Reminder too, if

(17:35):
all you need is a new document, maybe all you
need is a new Ladybird deed, or all you need
is a certificate of trust, whatever that individual document happens
to be. Go to the website DOYLELAWPC dot com, click
on the Legal Store, and there you will find information
how you can order individual documents. Don't have to be

(18:00):
your state plan. Order individual documents to the Legal Store.
They can be prepared, they can be emailed to you.
You can download them and print them and get them executed.
You'll also find information on ordering individual legal documents on
the office Facebook page. Again, all of that information available

(18:24):
at DOILAWPC dot com. Well, I think that's going to
be it for today's show. Hopefully you are staying warm

(18:46):
today and staying out of the snow. But as always,
if you have a comment about the program, a topic
that you'd like to have me discussed, or questions that
you'd like to have answered, simply head on over to
Tuesday with Tom. You can leave a voice message by
clicking on the microphone or send me an email Tom

(19:07):
at Tuesday with Tom dot com. Please to follow us
on Facebook. Invite your friends and family to follow us.
That would be Tuesday with Tom and follow the office
at Doyle LAWPC and don't forget join our email list.
You can subscribe to our email list at Tuesday with

(19:27):
Tom dot com. You can also subscribe to our email
list at thedoylelawpc dot com website. Remember two. Tuesday with
Tom is available on Apple Podcasts, Spotify, Amazon Music, Google Podcast, iHeartRadio, Spreaker.
Wherever it is that you normally listen to your podcast,

(19:50):
you're likely going to find Tuesday with Tom. And if
you have a favorite service that you use to listen
to your podcasts and you don't find Tuesday with Tom
on it, let me know and I'll see if we
can't add that to the list of channels in which
the program is available. And again, remember too, you can

(20:11):
always ask your smart speaker to play Tuesday with Tom. Well,
thanks again for spending some of your time with us
today and as always, I hope that you have an
awesome day and an awesome week in Michigan. Stay safe now.

(20:32):
Tuesday with Tom has been brought to you by the
estate planning attorneys at Doyle Law PC. To learn how
we can help you with your estate plan or with
settling a loved one's estate. Please call Us today at
five one seven three two three seven three sixty six.
That's five one seven three two three seven three sixty six.