Property Insurance Coverage and Estate Planning: It’s All in the Details
March 8th, 2013
When it comes to the growing use of sophisticated wealth transfer mechanisms like trusts and limited liability companies by individuals, the details include complicated insurance considerations that must be expeditiously addressed. If not, the devil—in this case a potentially catastrophic loss of coverage—might make an unexpected visit.
Estate planning is full of twists and turns as there are many moving parts that change over time. And when managing these changes between all moving parts involved, one must be sure to mind the details …or else suffer the consequences.
A recent article in AdvisorOne provides a good reminder of the need to take care of the details when constructing your estate plan. The article, titled “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details,” uses the example of trusts and LLCs to illustrate how even the best intended planning can go astray. These common entities are often used by estate planning attorneys to protect client assets from probate and creditors, and they are also used to transfer the assets to loved ones after death.
Unfortunately, unless the assets are properly retitled, the full benefit of the planning may not be realized. In addition, unless various insurance carriers are notified that the trust or LLC is now under a new owner (or additional insured), there may be challenges in the event of a future claim. Example: if the family home is transferred into a Qualified Personal Residence Trust (QPRT), but the property casualty policy is not updated to reflect this transfer.
Insurance is underwritten with the listed owner in mind. If you transfer an insured asset to a legal entity, then you might invalidate the insurance coverage.
The above-mentioned article is a good reminder that estate planning is never a “one and done” deal. Maybe this is a good time to review your assets, estate planning and insurance coverage with your estate planning attorney.