Holding personal real estate in a Trust or LLC is a common practice in the United States, whether it is for estate planning, limiting personal liability, or tax reasons. According to the IRS, the personal use of LLCs and trusts has increased substantially over the last decade. Most people are not aware, however, that the use of these instruments influences how your property insurance should be structured. In our experiences, it is a common misconception that assets held in LLCs and trusts are protected from liability. The reality is that even a trust or LLC could be liable if there is an injury on the property.
How are trusts and LLCs used?
Trusts and LLCs are both legal instruments; however, each instrument provides different characteristics that help to limit the property owners exposure. A trust is a legal agreement that grants an individual or institution the right to manage property or assets for the benefit of someone else. An LLC is a business entity with corporate and partnership qualities that limit the personal liability of the members.
How to list a Trust or LLC
A trust or LLC can be listed on the policy as "Named Insured" or as an "Additional Insured" depending on the liability concerns of the members. For example, if a LLC is the sole owner, it should typically be included as a named insured, but the policy should also be designed to provide sufficient coverage for the LLC owners or members as well. To achieve the proper coverage structure based on your situation, be sure to consult a financial advisor and independent insurance agent.
How to find the right insurance
Many insurance carriers aren't comfortable with LLCs or trusts, and therefore won't allow policy holders to name their LLCs or trusts on their policies. Similarly, many insurance agents aren't familiar with handling trusts or LLCs, and handle it improperly or avoid the subject all together, which could leave you exposed. In general, be skeptical of transactions with 1800-direct and do-it-yourself.com companies. Seek independent consultation with trusted financial advisors and agents to find you the right insurance for you. Remember, this is your financial future at stake, and perhaps even your children's and grand children's as well.