Quote Ref: WS1

Insurance for properties being placed or held in Trust

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For several hundred years or so, Trusts have been used as a way of holding assets in a separate and distinct legal entity. Examples of assets held range from money to investments and from land to property – all may be held and owned by a Trust.

There are many different reasons for transferring the ownership of assets to a Trust and there are different types of Trust to accommodate the wishes and intentions of the settlor – the person setting up the Trust.

For example, the creation of a Trust may simplify the management of your financial affairs, with benefits that include the following:

  • the potential for avoiding care home costs – by transferring ownership of your home to a Trust, you might avoid having to sell it in order to pay for your long-term care in older age;
  • by setting up a Trust you might also rationalise your liability for inheritance tax – the reason being that transferred assets are no longer in your ownership, so are exempt from inheritance tax (but tax is a perennially complex issue and you might want to take professional advice on the implications for inheritance tax liabilities);
  • a Trust may provide a suitable vehicle for the avoidance of something called “sideways disinheritance”, which occurs if a surviving spouse remarries and passes on the assets to children of this second marriage – a Trust may be used to ensure that the children from your first marriage benefit from the assets transferred;
  • ass Which? magazine also points out, a Trust might substantially reduce probate costs – since the assets held in Trust are beyond the control or ownership of your estate.

Insurance

When you set up the Trust you may have made yourself one of the principal beneficiaries, granting you the right to continue to occupy the property, possibly upon payment of a nominal rent.

Of course you are likely to want to maintain insurance cover for the property, but it is important to be aware of the implications of home insurance on properties in Trust.

The key point to remember is that the property insurance you might have arranged is no longer valid, since the transfer of ownership means that you no longer have an insurable interest in the structure and fabric of the building.

Instead, it is the new owners, the Trustees, who must ensure that adequate insurance is properly arranged in the name of the Trust in order to maintain protection of the property against a wide range of physical risks and the owners themselves against public liability claims from any member of the public who may be injured or suffer damage to their property whilst in or near the home.

It is not you home address to which any insurers need to send correspondence – such as renewal notices or other information – but the Trustees.

If the Trustees fail to arrange proper and adequate insurance, any loss or damage to the property represents an uninsured loss to be met from any assets remaining in Trust and any Trustee with a legal qualification, for example, may be sued for professional negligence.

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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?

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