With the new school year approaching and your child heading off to college, you've likely…
If you are in the process of building your estate plan you have probably heard about the benefits of placing your assets in a trust. This route is often recommended for those wary of costly and complex probate procedures or the danger of estate taxes gobbling up a chunk of your life’s work. These are both good reasons to consider a trust in place of a traditional will; however, without proper planning doing so can expose you to other, equally costly risks.
How Does a Trust Work?
There are many different kinds of trusts and the one best suited to your needs will depend on your goals and circumstances. Medicaid Asset Protection Trusts, for instance, protect your assets from being counted against Medicaid eligibility. Incentive trusts can be used to ensure an irresponsible heir does not squander their inheritance on self-destructive purchases. Revocable living trusts safeguard your estate against probate costs and prying eyes. Each of these examples operates in a unique way but shares the common feature of titling the assets invested in the name of the trust instead of in that of the owner. While this feature presents numerous advantages, it also carries the risk of making you vulnerable to insurance mishaps.
Trusts and Insurance: What You Need to Know
If you place your home in the name of a trust, for example, you are no longer your home’s owner in the eyes of your insurance company. This means that if an unexpected disaster occurs and you need to make a claim you could find yourself in a big pickle. The insurance adjuster will ask for a copy of your Title Deed and when they see that your trust is named as the owner (instead of you, personally), they may make collecting proceeds difficult if not impossible.
Another risk associated with placing assets in the name of a trust involves liability expenses related to potential lawsuits. Suppose an individual is harmed on your property and decides to come after you for damages. They might sue both you, personally, and the owner of the household defect responsible for the accident (which is the trust, of course). If a judgment is made in favor of the plaintiff and only you are named on your insurance policy, your trust assets could quickly disappear.
These are only two of a range of possible scenarios in which placing your assets in a trust may make you vulnerable to insurance risks. Protecting yourself against these sorts of situations is not difficult but there is no one-size-fits-all answer. This is why it is crucial to involve an experienced estate planning attorney in both creating your trust and resolving any liabilities associated with the act.
At the Law Firm of Christopher W. Dumm, we bring decades of experience to both trust creation and liability protection. The worst thing you can do when building an estate plan is inadvertently expose yourself and your loved ones to unseen risks which is why you should reach out to our office today to talk about solutions to your unique situation.
Contact the Estate Planning Attorneys at the Law Firm of Christopher W. Dumm