Insuring a home held in a trust or LLC

If you move your house into a revocable living trust, tell your insurer before the deed is recorded and ask for the trust to be added by endorsement or the trustee to be added as an insured. If you move it into an LLC, expect more resistance: a standard homeowners policy is written for individuals, and many insurers will not put an LLC on one at all. Either way, the person or entity on the deed and the people on the declarations page need to line up, or a loss can turn into an argument about who was insured.

Estate lawyers recommend trusts for probate avoidance and LLCs for liability separation, and those reasons can be sound. Insurance is the step that gets skipped. The paragraphs below describe the standard ISO homeowners form and the endorsements built for this problem; your insurer's own forms and your state's rules decide what applies to you.

Why title matters to a policy

A homeowners policy is a contract with a named person about a particular building. In the ISO HO-3 (HO 00 03 05 11), "you" means the named insured shown in the declarations and a resident spouse. The covered dwelling is the one "where you reside." The form also says losses are adjusted with "you" and paid to "you" unless someone else is named or legally entitled to the money. Property coverage depends on insurable interest, a financial stake in the building, and the form limits what it pays an insured to that person's interest at the time of loss.

Now change the title. After you deed the house to a trust, the legal owner is the trustee. If the policy still names only you and your spouse, an insurer can argue that the owner of the damaged building is not its insured. IRMI's commentary on the subject (Timothy O'Brien, IRMI, April 2021) puts the underlying problem in one phrase: an entity is a "what," not a "you," so an unendorsed homeowners policy does not treat it as an insured. Some insurers pay anyway when a trust is simply the owner's estate-planning vehicle. Others do not, and you will not know which kind you have until the claim.

A home in a revocable living trust

This is the common case: you and your spouse create a revocable trust, serve as trustees and keep living in the house. Insurers usually write it with one of three fixes.

1. A trust endorsement. ISO's Trust Endorsement, HO 06 15 (edition 02 17), replaced the older Residence Held in Trust form, HO 05 43. According to FC&S, the endorsement insures the named trust and its trustees, but trustees only in their role as trustees. Their personal property and unrelated liability stay with their own policy. Real property is an insured location only if legal title is held in the named trust.
2. The trustee added as a named or additional insured. Many insurers use their own wording instead of the ISO form. The additional insured route and the named insured route differ in who can cancel the policy and receive notices. Ask which one yours uses.
3. A new declarations page that lists the grantors, the trustee "as trustee of the Smith Family Trust dated" a given date, and the trust itself.

The ISO endorsement also creates reporting duties. You are to tell the insurer promptly about a change in trustees, a trustee's death or disability, the trust's termination, a change in the trust's name or address, and the grantor ceasing to live at the home. Insurers can ask for the trust documents, and notices of cancellation or nonrenewal go to the trustees as well.

Irrevocable trusts, and trusts that hold a house for beneficiaries who live there, are harder. The person who occupies the home may no longer own it, and the insurable interest and occupancy questions need an underwriter's answer, not an assumption.

The umbrella policy

An umbrella follows the underlying policy and its own definition of an insured. IRMI notes that a personal umbrella covers individuals, so an endorsement on the homeowners policy does not automatically extend umbrella protection to a trust or trustee. If you have an umbrella, ask the umbrella carrier separately. See umbrella insurance for homeowners: what it adds and where it stops.

A home in an LLC

LLCs are more difficult for owner-occupied houses. The IRMI article lists the pieces that must be protected when an entity owns the residence: the dwelling and other structures, premises liability for the entity and its members, and contents, additional living expenses and liability for the people who live there. A homeowners policy with only the LLC named gives the occupants none of that, and one with only the occupants named leaves the owner uninsured.

What insurers do about it falls into a few groups.

Business activity at the home pushes the risk toward commercial underwriting, which is a different market with different forms and a different price. Do not assume a homeowners policy "with the LLC added" does what a commercial package does.

An LLC also does not make your own liability disappear. Courts generally hold people responsible for their own negligence, so the owner who mows the lawn and leaves a hose across the walk may be named in a suit next to the LLC. Ask your lawyer how an LLC changes your exposure and ask your insurer whether your own liability limits still apply to you at the property.

What your mortgage lender thinks

Moving a mortgaged house into a trust or LLC raises a loan question as well as an insurance question. Federal law bars a lender from calling a residential loan due on a transfer into an inter vivos trust in which the borrower is and remains a beneficiary, provided occupancy rights do not transfer (12 U.S.C. 1701j-3(d)). A transfer into an LLC is not among the transfers the statute lists, so check the loan documents and call the servicer first.

The insurance policy has to satisfy the lender as well. For individual one- to four-unit properties, Fannie Mae's Selling Guide at B7-3-08 says the policy must name all persons holding title as named insureds so the borrower has full rights to the policy. That page does not say how a trust or LLC fits, which is why the servicer's own instructions matter. Make sure the mortgagee is shown correctly on the new declarations page.

A hypothetical

Say Sam and Dana deed their house to the Reyes Family Trust and name themselves as trustees, but nobody calls the insurer, and the policy still shows "Sam Reyes and Dana Reyes." Two years later a kitchen fire causes $90,000 of damage. The adjuster pulls the deed, sees the trustees as owners and asks why the insured is not the owner. Many carriers resolve that by adding the trust going forward. Some reserve rights, and some deny. The same facts with a trust endorsement attached and the trustees listed produce no argument at all. The difference is one phone call and, perhaps, a small premium.

Before you retitle: seven steps

1. Ask the attorney who drafted the documents what entity or trust type is being used, who the trustees are and who will occupy the home.
2. Call your agent first, not after. Ask whether the insurer will write the trust or entity and on which form.
3. Get the wording in writing: named insured, additional insured, the endorsement number and the edition date.
4. Match the dates. Ask that the changed policy take effect on the date the deed is recorded, so there is no gap.
5. Update the umbrella and any scheduled personal property or floaters.
6. Tell the mortgage servicer and send the new declarations page if it requires one.
7. Put a reminder to update the insurer when a trustee changes, a trustee dies or the trust terminates.

If you retitled years ago and never told the insurer, read your declarations page against the deed now. If the names differ, ask the insurer how it wants the policy corrected. Tell the truth about the date of the transfer; an insurer asked to fix a gap before a loss is in a much easier position than one asked afterward.

Key takeaways

• The deed and the declarations page must match, or an insurer can argue that the owner of the damaged house was never insured.
• For a revocable trust, ask for a trust endorsement (ISO HO 06 15, or the insurer's equivalent) or the trustee added as an insured, and report later changes in trustees.
• A standard homeowners policy treats an LLC as ineligible; owner-occupied LLC homes usually need a specialty or high-net-worth insurer, and rentals need a landlord or commercial policy.
• Check the umbrella policy and the mortgage servicer separately, since neither follows the homeowners endorsement automatically.
• Call the agent before the deed is recorded and get the changes in writing.