Insurance Ramifications of Transferring Real Property

Ramifications of Transferring Real Property to a Trust, Partnership or LLC

A recent California appellate court decision brought about the importance of updating your insurance policies to represent the changes in Ownership or risk currently not covered by your existing policies after you have transferred real property to your trust, partnership or limited liability company (LLC).

A recent California court of appeals case, Kee Kwok v. Transnation Title Insurance Company (2009), held that the insurance policy which covered the LLC did not cover the husband and wife after they transferred title of the property from their LLC to themselves as trustees of their family trust.  The court felt the insured was the LLC, and the policy did not cover the Kwoks since title was transferred from the LLC to the Kwoks as trustees of their family trust, a separate entity, and therefore they were not covered under their current policy.

This problem exists with other forms of insurance, i.e. general liability coverage.  If your general liability coverage is in your name, and you then transfer the title to yourself as a trustee of a trust, depending on the language of your policy (as all policies are language specific), you may not be entitled to the coverage in your new capacity as trustee.

So what can one do about this particular situation?  Any property that you transfer to a trust, partnership or LLC, or vice versa, you must review your policies to assure whether you are entitled to the coverage under the policy.  If you are not, appropriate steps must be taken to ensure you become covered, either by obtaining endorsement adding yourself or the entity to the policy as insureds, or obtaining brand new policies.

Some of the newer policies may actually cover transfers to trusts, but not to other entities.  Thus, when transferring property, a review is imperative to make sure your existing policies cover the transferred person or entity.  If this is not the case, the insurer must be contacted and an endorsement obtained covering the new owner or new policy issued.  Most of the common transfers in California to and from family trusts or other entities can be covered under CLTA Endorsement 107.9.

In summary, it is imperative you are careful to change your insurance policies to reflect any changes in ownership after transferring real property to a trust, partnership or LLC, or vice versa, or risk losing your insurance coverage.