Property Trust Insurance

Trusts may be used as a way of managing your financial affairs as you approach old age. As the settlor of a Trust, for instance, you might choose to transfer the home you live in to one of your children as the beneficiary of the Trust. This may help in avoiding selling your home to pay for your own long-term care and instead allow you to pass your home on to your children as their inheritance.

Typically, you continue to live in the property after its transfer and pay the Trust a nominal rent for that right.

Home insurance on properties in Trust

Once the property has been transferred to a Trust, you, the Trustees and the beneficiaries of the Trust, all share an interest in protecting the property with adequate home insurance.

The insurance of such properties placed into Trust is a niche speciality of us here at UKinsuranceNET, as it can be a complex matter. The transfer of the property into a Trust has important implications for the way in which the asset is insured and the way in which that insurance is managed:

• the transfer to the Trust is just that – a transfer of the ownership of your home to Trustees;
• as a result, you are no longer the owner of the property, have no insurable interest in it, and are unable to make any claim on insurance that is in your name if the home suffers loss or damage;
• if the insurance remains in your name, the legal owners of the property – the Trustees – have no claim and need to bear the cost of loss or damage from Trust funds alone;
• it is not only physical loss or damage to the property which remain at risk, but also claims against the owners from tenants, visitors or members of the public who suffer a personal injury or have their property damaged as a result of the owners’ negligence;
• once again, if any property owner’s liability indemnity is held in the name of the settlor of the Trust and not the Trustees, it is the latter who are likely to be held liable and ordered to pay what may be substantial compensation;
• the change in ownership on transfer of the property to a Trust may also affect the way the home insurance is managed in respect of the mailing addresses used upon renewal dates and other important notifications from the insurers;
• even if the insurance has been properly arranged – recognising, the existence of a Trust, the Trustees and the solicitors managing the Trust – if the original settlors continue to pay the premiums and leave their own correspondence address, the new owners and their solicitors are given no notice of the annual date on which the policy needs to be renewed;
• by the same token, if for some reason insurance premiums are not paid when they fall due, any cancellation notice sent to a previous correspondence address does not reach the attention of the Trustees – the policy lapses and any subsequent claim is invalid.

What could go wrong?

While the above pointers lay out the importance of setting up and managing a buildings insurance for a property in Trust, the following examples of how you could be affected if you do not have the correct type of cover really ram the facts home:

John and Jill are in their mid-60s and enjoying retirement. Whilst healthy, they decide it’s good to plan ahead and move their home into a Trust for the benefit of their children. They nominate their oldest child as Trustee. On completion of the Trust, however, no changes are made to the household buildings policy which remains in their name .…

Scenario 1

The house suffers a large fire and suffers structural damage to the roof necessitating repairs of over £50,000. The claims handlers quickly identify that the property is in fact owned by the Trust, with the Trustees being the legal owners.

The policy has been incorrectly set up and the property is in effect uninsured. John and Jill are unable to demonstrate hey have suffered a financial loss. The Trust has suffered the loss, so the claim is not paid.

Scenario 2

A visitor in the house slips on the stairs and suffers a broken hip. A faulty stair is identified as the cause of the fall and the visitor pursues a claim for injury and loss of earnings totalling £40,000. The home claims team conclude that the structure of the building was faulty but refuse to pay any claim. As the Trustees are the legal owners the claim is pursued against them and in the absence of a correctly set up policy, they are forced to settle the claim from their personal estate.

As the above case studies clearly lay out, making sure you have your buildings insurance policy set up correctly is of the utmost importance.

If you are considering putting your house in Trust to manage future care fees, therefore, it remains vitally important that the Trustees – and any solicitors acting on their behalf – arrange and manage the insurance of your home in the proper manner.

Further Reading:

• How to Insure a House Placed in Trust
• How to Manage Care Home Fees
• Home Insurance for Properties Placed in Trust
• Why Set up a Trust?
• Insurance for Properties Being Placed or Held in Trust