The beneficiaries are those who receive benefits from the trust. They may receive income on a regular basis, may receive property after the grantor dies, may receive funds when a certain age is reached, or receive other assets as designated.

Property in a trust is any asset the grantor places into it; it could be cash, investments, real estate, or other valuables. Once the property is in the trust, it is the property of the trust and must be managed according to how the trust was set up.

Types of Trusts

There are several types of trusts, but most fall into one of three major types. The first is a testamentary trust which is set up in the will, and upon the death of the individual the designated assets are put into a trust. Nothing happens with the assets until the person dies.

A revocable living trust is just that, revocable. It allows the grantor to make changes over time if desired. As circumstances change the grantor may want to make changes – divorce, remarriage, acquisition of new assets, there are many reasons a grantor may want to change or even discontinue a trust. A revocable trust allows for that flexibility. However, the assets are still owned by the grantor, so a revocable trust does not afford the same protection from lawsuits or creditors. It does avoid probate though, making it easier for the beneficiaries.

An irrevocable trust is permanent; the grantor permanently puts the assets into the trust and the terms are not changeable without the consent of the beneficiaries. The grantor loses control of the trust and the assets. It helps avoid certain tax liabilities and can help protect an individual with special needs without affecting their eligibility for government benefits such as Social Security or Medicaid.

Once you get beyond the basics, there are many other types of trusts including marital, AB trusts or credit shelter trusts, charitable trusts, special needs trusts, spendthrift trusts, generation skipping trusts and many others. But once a trust has been put in place, how do the property policies address them? The property is no longer in the name of an individual, but a trust.

Homeowners Policy

The Homeowners Special Form HO 00 03 Homeowners Special Form defines "you" and "your" as the "named insured" and resident spouse. While "named insured" is not defined, it's pretty clear that the form is designed for an individual and spouse or family. The ISO manual states that a homeowners policy may be issued to the owner-occupants of a one-, two-, three-, or four-family dwelling used exclusively for residential purposes other than a few exceptions.

Also eligible are the purchaser-occupant who has entered into a long-term installment contract for the purchase of the dwelling when the title will transfer at a later date, or the occupant under a life estate arrangement when the property is insured to 80 percent of its replacement cost. Dwellings in the course of construction are eligible as long as the policy is in the name of the future owner-occupant, or when there are two or more apartments in a one-, two-, three-, or four-family dwelling and there are distinct living quarters with separate entrances. The Additional Insured – Residence Premises HO 04 41 endorsement is needed for all of the other options other than property in the course of construction. Note that other than a life estate, there is nothing resembling a trust in the eligibility requirements.

HO 04 41 Additional Insured – Residence Premises

The HO 04 41 Additional Insured – Residence Premises is designed for situations where another person or organization may have an insurable interest in the property. This is for additional insureds other than the mortgagee. The form requires that the name and address of the person or organization be listed as well as their interest in the property.

The form then modifies the definition of "insured" to include the person or organization listed in the schedule regarding Coverage A Dwelling and Coverage B Other Structures, as well as Coverage E Personal Liability and Coverage F Medical Payments to others. Coverages E and F are included only with respect to "bodily injury" or "property damage" arising out of the ownership, maintenance, or use of the "residence premises". Therefore, if someone is injured on the property in question and sues the owner and the additional interest for their injuries, there is coverage.

Excluded is coverage for injuries to an "employee", "residence employee", or temporary employee supplied to substitute for a permanent "residence employee" arising out of or in the course of the employee's employment by the person or organization. If a permanent employee is on leave for some reason, a temporary or other substitute employee who is injured on the premises will not be covered. Those listed in the schedule will be notified of any policy cancellation or nonrenewal. When coverage is not provided under this endorsement, coverage may be provided under the HO 04 10 Additional Interests – Residence Premises endorsement.

HO 04 10 Additional Interests – Residence Premises

The Additional Interests- Residence Premises form is often confused with the Additional Insured endorsement. The two are different – the additional insured endorsement makes those listed insureds under the policy for certain provisions. The Additional Interest endorsement simply schedules a person or organization as an additional interest on the policy. No coverage is granted; those in the schedule are simply listed as those with an interest in the property, but have no coverage and will receive notice of cancellation and nonrenewal. That is the only thing they receive. A parent may have given a child money towards buying a property – they may want to secure their investment in the property and would want to be shown as an additional interest.

HO 06 15 Trust Coverage

While the eligibility requirements for a homeowners policy do not directly address trusts, coverage may be added by way of the Trust Coverage HO 06 15 endorsement. Under this form a trust may be added for coverage under Section I for insurable interest in the dwelling or other structure that is part of the trust, and also may be covered under Section II Liability Coverages for bodily injury or property damage liability that arises out of the ownership, maintenance, or use of an insured location that is held in a trust. The HO 06 15 endorsement must be used, and the name and address of the trust and the trustee must be listed. A trust may be listed as an insured if the trust can be recognized under state law as a legal entity, and that entity can sue or be sued in a court of law having jurisdiction. This gives the trust the same legal standing as an individual instead of a business.

The definitions of the policy are modified with regard to the trust and trustees listed in the endorsement. Added to the definition of "insured" is the trust as long as under applicable state law the trust can sue or be sued in a court having jurisdiction. The trust must be scheduled. Once scheduled, the trust is granted Coverage A and B, as well as Coverage E and F. Coverages E and F, liability and medical payments to others, are afforded only with respect to injury or property damage that arises out of the ownership, maintenance, or use of the property as defined.

The trustee is then considered as an insured as well for the same coverages. Coverage A and B, and Coverages E and F but only for injury or damages arising out of the use of the property. Also, this only applies to the trustee's duty as trustee of the trust. If the trustee is on the property for official reasons and something happens, there is coverage. However, coverage for the trustee does not apply if the trustee is there for personal reasons and a visiting friend is injured; there is no coverage for the trustee.

Other definitions are modified as well. "Business" is modified to make an exception for activities performed by a trustee in connection with administering the trust listed. "Insured location" is modified to mean real property only if legal title is held in a trust with respect to the trust listed in the schedule.

The exclusion for Coverage E for "bodily injury" to you or an "insured" is modified to also exclude trustees as listed. Under conditions, if the policy is cancelled, notice will be sent to the trustee as listed.

Certain provisions are added that specifically address trusts. First, copies of the trust documents are to be provided as often as the insurer reasonably requests. The insurer must be notified promptly of any changes related to the trust in the schedule as follows:

• Changes in the name or address of the trust
• Changes in the trustee, including additions or deletions
• Changes in the mailing address of any trustee
• Termination of the trust
• Death or disability of a trustee
• The grantor or settlor of the trust discontinues living in the "residence premises".
• If a Personal Injury endorsement is attached to the policy, then the exclusion for injury to you or an "insured" is modified to also exclude a trustee as listed in the schedule.

Personal Auto Policy

Personal auto policies have the same issue that homeowners policies do; the policies are designed to provide coverage for "you" and "your" and spouses if they are a resident of the household. In order to be eligible for a private passenger auto policy, the vehicle must be specified on the policy and owned by an individual or spouses who are residents of the same household.

An exception is available for vehicles owned by a farm family copartnership or farm family corporation if the vehicle is owned by two or more relatives of the same household and it is principally garaged on a farm or ranch and meets the requirements for vehicle eligibility.

Therefore, for a trust to be covered, an endorsement must be added. First, the grantor/settlor of the trust must be an individual or spouses, and the grantor/settlor must be listed as the named insured on the declarations. If the grantor/settlor is a corporate entity, then the vehicle is not eligible for coverage under the personal auto policy. Trustees may not be a partnership or joint venture, a corporation, a limited liability company, or an organization other than those listed. Likewise, a licensed professional providing ongoing professional services with respect to the licensed profession in connection with the administration of the trust is not eligible. However, this does not apply to any named insured or individual who is a relative of the grantor/settlor of the trust. So, if the grantor's son is a licensed professional providing trust administration services to others, he could be a named insured on the policy.

If the grantor/settlor of the trust meets the requirements, then the Trust Endorsement PP 13 03 may be used to add the trust to the auto policy. The endorsement requires the name of the trust to be listed on the schedule. If not already listed as a named insured in the declarations, the named insured grantor/settlor and the name of the trustee will also need to be listed on the endorsement schedule. Addresses are required for those listed in the schedule.

The form then modifies the definition of "you" and "your" to refer to the named insured listed in the declarations as well as the grantor or settlor listed in the schedule and the spouse of said grantor/settlor if they live in the same household. A vehicle is deemed to be owned by a person if the title is transferred to the trust shown in the schedule.

The liability coverage modifies the definition of "insured" to include the trustee listed in the form for the maintenance or use of the covered auto, but only with respect to the trustee's duties as part of the scheduled trust.

The general provisions section has a few changes. The insurer must be promptly notified of any changes related to the scheduled trust, including changes in the name and address of the trust, changes in trustees, changes in mailing address, termination of the trust, death or disability of a trustee, or death or disability of the grantor/settlor of the trust. If the policy is cancelled or nonrenewed, notification will be sent to the trustee in the schedule. The insurer is allowed to request copies of the trust documents as often as reasonable.

Commercial Policy

Commercial property policies are a different issue. Since they're designed for business entities to begin with, a trust does not present the same issue that it does for personal lines policies. The commercial property policy therefore has no trust endorsement.

Commercial liability has two forms; the CG 34 05 Additional Insured - Trusts and the CG 20 23 Additional Insured – Executors, Administrators, Trustees or Beneficiaries. The CG 34 05 is designed to be used with the Pollution Liability Coverage Part Designated Sites, the Pollution Liability Limited Coverage Part Designated Sites, the Products/Completed Operations Liability Coverage Part, and the Underground Storage Tank Policy Designated Sites forms. The form then simply modifies the Section II Who is an Insured portion of the policy by adding a trust. Trustees are also considered insureds, but only with regards to their duties as trustee.

The Additional Insured – Executors, Administrators, Trustees or Beneficiaries form CG 20 23 is used with the Commercial General Liability Coverage Part. Again, this changes the definition of who is an insured by including as additional insured any executor, trustee, administrator or beneficiary of the insured's estate or living trust while acting within the scope of their duties. There are a few caveats – the insurance applies only to the extent permitted by law, and if coverage for an additional insured is required by a contract or agreement, then coverage will not be broader than what is required by said contract or agreement.

Regarding Section III Limits, if coverage is required by a contract or agreement, the most that will be paid is the lesser of the amount required by the contract/agreement or the available limit of insurance. The endorsement does not increase the limits of insurance.

Summary

Trusts are a common way for people to handle the distribution of assets and deal with tax issues. When used with personal assets, there are insurance implications that need to be addressed. These issues are readily handled by way of endorsements, but insureds should be aware that a trust is not the same as an individual, and that coverage varies.