By: AnnaMarie Mock, CFP®
What is a Revocable Trust?
A revocable trust is an extension of the grantor or you as the individual owner. Revocable trusts direct how assets will be managed by appointed trustees during the grantor's lifetime and transferred to beneficiaries after the grantor's passing. Because of the structure, the grantor can modify, remove, or add any instructions to the trust during their lifetime.
Advantages of Using a Revocable Trust
Revocable trusts have become a staple in estate plans for many people, especially those trying to minimize the need for probate. Probate is the process for identifying and gathering assets of a deceased person's estate and adequately distributing them to heirs and designated beneficiaries.
Probate property is either distributed according to the decedent's last will and testament or based on state law if no will exists. By avoiding probate, this also provides privacy as the named beneficiary will not be a public record, as in the case of a will.
Including a House In a Revocable Trust
A revocable trust can simplify an individual's estate situation and bring many new risks for homeowner's insurance if not appropriately addressed. If you purchase a home with a revocable trust, the trust legally owns the house, and you as the grantor of the trust owns the home through the trust. The insurable interest changes from just you as the owner to the revocable trust as well.
For example, there is a fire in your home, leaving several rooms and your belongings destroyed. The trust owns your home, but the trust was never included as the insured on the homeowner's policy.
If the insurance policy only lists you and your spouse, your personal items will be covered, but you may have an issue with the insurance company reimbursing the damaged structure. The trust is another entity that has ownership and an insurable need.
When putting your home in a trust, we recommend discussing the ownership structure of your home with your Property & Casualty Insurance Provider to ensure all parties' interests are represented on the policy.
The policies should include the trust, grantor of trust (you) as the "insured," and a spouse if applicable. Having the trust as one of the owners on your homeowner's policy, umbrella, and title insurance ensures that insurance will cover any claims and is easier for a successor trustee to conduct business if needed.
If the insurance policy is updated correctly, the homeowner's insurance will cover the residence, belongings inside, any damage to another person's property, and liability issues that occur on the premises.
If you have any questions, please feel free to reach out to the HIGHLAND team.
Author’s Bio
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.