One thing that every homeowner needs to think about is trust litigation. Attorneys look to reduce estate taxes on their client’s tangible properties. One way to do this is to transfer ownership of a property to a trustee or a trust.
When discussing the transfer of ownership of a residence, the grantor of the trust, a.k.a. the previous homeowner, may live in the residence and use the property however they wish for the rest of their life. This is an excellent tool for preserving an estate from tax issues.
However, there can be some insurance issues that might arise.
Potential Insurance Issues That Can Arise When Home Ownership Is Transferred to a Trust
Envision a scenario where a couple in their 60s is considering estate planning. They talk to their attorney about trust litigation, and it is determined that their assets, valued at $7 million, should be transferred to a trust in their name. Included in the assets is a home valued at $3 million.
They appoint a close relative as the trustee of the trust. However, all the insurance policies remain the same. The couple’s names remain on the umbrella policies and homeowner’s policies.
A few months later, there is a defective electrical circuit. The house burns to the ground. The insurance adjuster values the destruction at $4 million, a little more than the value of the home. Doing their due diligence, the adjuster wants a copy of the title.
When looking at the title, it becomes clear that the name on the title is not the name of the homeowner but instead the trustee. As a result, they issue no check.
What Was the Problem?
By definition of the homeowner’s policy, neither the trust nor the trustee are insured. The home and the personal property in it are uninsured.
In the above scenario, the couple in their 60s might get the value of their insurable interest and expenses for renting a fully furnished home. But they will not get the full value of the property that was destroyed. This is something homeowners should be aware of.
Finding a Good Solution
There are ways to solve these potential insurance and trust issues. Trust litigation can be complicated. It is important to work with an attorney who understands the ramifications of any decisions made about forming a trust that includes property.
other valuable tips:
What are the Duties of a Licensed Insolvency Trustee and Why do You Need One?
The Truth About Estate Planning (Wills, Trusts, and Probates)
A good attorney should be able to explain your options to you in a way you understand. Don’t hesitate to ask any questions you have.
Their goal should be to pursue creative legal solutions that benefit the client. This does not always involve litigation. If disputes arise, an attorney should strive to resolve disputes in a cost-effective manner, which typically includes planning and prelitigation strategy.
Trust litigation can be avoided if a trust is created in a way that considers the current and future needs of the client. This requires an attorney to have a client centric approach.
Image Credit: trust litigation by twenty20.com
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