Title InsuranceCoverage on Transfers to Living Trusts
The Castleman Law
Firm
A Professional Corporation
5870 Stoneridge Mall Road, Suite 207
Pleasanton, CA
94588
(925) 463-2221
Fax: (925) 463-0328
Most title policies cover only the insured owner for whom the policy was originally written. Technically, when you transfer title from yourself, as the individual owner of your property, to yourself as the trustee of your revocable living trust, you are transferring the property to a "new" owner. This "new" owner may not be insured under your existing title policy.
You should review your existing policy before transferring title to your trust to determine whether such a transfer is covered under your policy. Many new title policy products cover transfers to living trusts. If your policy is older or if coverage is not clear, you may wish to call your title company to determine whether such a transfer will be covered. You should ask for a written response from the title company.
We have found that title companies may take an inconsistent position on whether a title policy covers transfers to trusts. Most title companies admit that they will continue to insure title to the property after a transfer to a trust if the original owners are the trustees and lifetime beneficiaries. However, several indicated that if a large claim were made against the title policy, they might use the fact that a transfer had been made to a trust as an excuse not to provide coverage. This presents a certain amount of risk for you.
If you are uncomfortable with this risk, you may be able to obtain an endorsement which provides continued coverage under your old policy. Whether the title company will issue this endorsement will depend on how old your policy is. If your policy is more than three-five years old, the title company may refuse to issue the endorsement and require you to obtain a new policy. Since there have been many mergers in the title industry, you may also find that your policy was written by a company that is no longer in business. The successor company will probably be unwilling to endorse a policy they did not originally write.
If your policy does not cover a transfer to a trust and you cannot obtain an endorsement, you may want to purchase a new policy. The price of this policy will be based on the value of the property and may be quite expensive. In deciding whether to buy a new policy, you should evaluate the likelihood of a claim on your title insurance. If you live in an urban area and your land is part of a subdivision and if you have lived in your home for at least five years, the risk of a claim may be relatively low. If, on the other hand, your property is located in a rural area where boundary lines may be inexact, you may find the cost of the new policy is well spent.
In deciding how to proceed, you should discuss your personal circumstances with your attorney, who can best counsel you on protecting title to your property.
© 2001 By Barbara J. Savery, Attorney at Law