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Trusts have become an increasingly common estate planning vehicle to protect assets from costly probate court proceedings and potential tax consequences. In addition, trusts provide privacy and can be used to place assets beyond the reach of creditors. They are a powerful tool for preserving property and investments for the continued benefit of future generations but they are not without risk.

A common mistake folks make when instituting a trust is to do the hard work of putting everything together and then forgetting to fund the trust with the assets it is intended to protect. This error can be easily avoided with thoughtful organization and attention to detail. A more insidious trust-related oversight involves protecting yourself and your trust assets against uninsured claims. Understanding how to avoid this one requires more nuanced understanding of the subject.

What You Need to Know About Trusts and Insurance
Trusts work by retitling your assets not in your name but in that of the trust. This feature allows them to achieve the many financial advantages they provide but all this good can be quickly undone of your insurance policies do not reflect the new state of affairs.

If when executing a trust you do not update your insurance policies, only you will remain covered, not the trust. On the other hand, if your insurance policy covers your trust but not you or your family an accident could provoke serious financial consequences.

Imagine, for instance, that you have a placed your home in a trust. Nothing changes on the outside but on paper your trust is now the owner, not you. This means that if your pipes freeze and cause your basement to flood, you may not be covered if your insurance adjustor notices that your home is not titled in your name (but in that of your trust).

Alternatively, imagine that a visiting friend or acquaintance suffers an accident on your property due to a home defect. They decide to sue and come after the owner of the home which is now your trust, not you. You are the individual named in your home insurance policy which means the homeowner (the trust) is not covered and any liquid assets contained therein are at risk.

These are only two of many complications that can arise when placing assets in a trust and failing to appropriately update your insurance policies. Resolving these risks is no simple matter as the intricacies are numerous and are difficult to foresee. Even if you do amend your home insurance to name your trust, you may still run into complications concerning the items your home contains. This concern and others like it demonstrate the importance of enlisting the help of an experienced estate planning attorney when seeking to make use of the many benefits a trust provides.

To learn more about building a secure estate plan that takes advantage all a trust can do, do not hesitate to reach out to the Hailey-Petty Law Firm either by calling (512) 910-8977 in Austin, (210) 570-2458 in San Antonio or by using the contact form on our website.