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

0:30 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 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 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, 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.

1:57 We have a lot of clients who have a trust. 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 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 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 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

3:28 might be done in one of a couple ways. One you might have had a deed prepared that simply conveyed 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 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.

4:13 So those are the two ways, either having the property 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, 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 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 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

5:47 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, 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 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 an additional named insured. That's all you have to do.

7:05 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. 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 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 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, if you have other real estate, let's say a cottage,

8:40 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 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 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 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 your ownership of that cottage to your trust your mortgage company,

10:12 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 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 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.

11:04 And if they put in writing that you can transfer your cottage to your trust and that is not going 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 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 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 homeowner's insurer and have that cottage if you will have the trust added as an additional named insured relative to

12:35 the cottage, it's possible that that information might get back to your mortgage company, and if it gets back to 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 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 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 make sure now that your successor trustee no that as soon as they learn that you have died that they

14:06 need to contact homeowners insurer asap to add the trust 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 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 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, does your homeowners' insurance know your home is in your trust.

15:28 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 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, 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.

16:36 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 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. 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 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 your state plan. Order individual documents to the Legal Store.

18:05 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 at DOILAWPC dot com. Well, I think that's going to be it for today's show. Hopefully you are staying warm 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 at Tuesday with Tom dot com. Please to follow us on Facebook. Invite your friends and family to follow us.

19:14 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 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, 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 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.