Revocable Trust And Title Insurance

Added December 26, 2005 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: When you put a property in a revocable trust, you also need to be sure the title insurance policy coverage is changed. Title insurance assures the lender that you own the home free and clear, with no liens on it. When a home buyer sells the property, the subsequent buyer should buy his or her own title insurance.

Q: I came across an article where the reader was advised to put real property in a revocable trust.

Shouldn't they also amend their title insurance policy on this property at the same time? The title insurance policy covers them, but may not cover they revocable trust when it becomes the owner of the property.

A: You are absolutely correct. Most people don't know that title insurance policies only cover the named policy holder.

When someone buys a property the named policy holder is the buyer. He or she benefits from coverage under the title insurance policy. When the buyer sells the property, the subsequent buyer should buy his or her own policy.

Many home buyer buyers who obtained a title insurance policy at closing may later transfer title of their home to a living (revocable) trust or to another family member. In some cases, title companies may continue to furnish coverage under the original title insurance policy to other family members, but generally that occurs when family members inherit the home or through a divorce.

Title insurance companies would not cover purchasers of the home and may not cover other transfers in the title to the home.

Many title companies offer to issue an endorsement to a homeowner when the original title holder changes his or her ownership in the property but has done so for estate planning purposes or other personal matters. If the transfer meets the requirements that would allow the title company to issue an endorsement to the original title insurance policy, the title company will collect a fee for the endorsement. The endorsement isn't that expensive (it could cost several hundred dollars), and is well worth the money.

The endorsement would then cover the new title holder of the property to the same degree as the former owner. As you stated, when the owner transferred title to his living trust, the owner could pay the fee for the endorsement and the title company would issue the endorsement naming the living trust as the named insured under the existing title insurance policy.

Thanks for an excellent question.

Jan. 2, 2006

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