Red Flag: Trusts and Limited Liability Corporations
You may be involved in helping clients transfer assets into a Trust or LLC. If so, be sure that the insurance policies designed to cover the value of the asset and the liability exposure derived from the use of the asset is changed to account for the transfer of ownership. If the Trust is not properly included on the policy there is a chance that the Trust a) may not be paid properly for the value of the property if destroyed/damaged, and b) may not earn defense and indemnity protection if it is named in a lawsuit.
Hypothetical example: Assume that your clients transfer their vacation home into their Trust. Now let's suppose that while visiting your client's home someone suffers a serious injury due to some alleged negligence in how your client's kept their home free of danger. When the injured person's lawyer looks for all possible defendants, don't you think it'll be easy for them to find out that the home is owned by the Trust? Will your client's insurance policy provide both defense and indemnity coverage to the Trust in the management of the lawsuit? Are you sure?
Before something like this happens, talk to your insurance specialist and involve them in properly altering the insurance portfolio to reflect the position of the Trust or LLC. 99% of the time the premium change should be $0!
Mechelsen, Inc. Darren McGraw, MBA, CIC mechelseninc.com
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