The most valuable asset many clients own is their primary residence and/or vacation home. One “tool” in the estate planner’s toolbox to effectively avoid the time-consuming and expensive probate process at an owner’s death is to transfer or “convey” real estate into a Trust. However, such a conveyance should be completed with caution to ensure that you are protected in the event a problem with the property’s title is encountered in the future.
One form of protection is title insurance. Title insurance provides coverage in the event title defects, such as a fraudulent conveyance or an unknown easement or lien, are discovered after you have purchased your property. These title defects typically come to light when you are in the process of selling or refinancing the property. If you obtained a mortgage when you purchased your property, it is likely that “lender’s title insurance” was purchased at the time on behalf of the mortgage company. As the buyer of the property you had the option to purchase “owner’s title insurance.” Owner’s title insurance is purchased by paying a one-time premium as part of the closing costs. If purchased, you should have received an owner’s title insurance policy. The purpose of title insurance is to provide you, as opposed to the mortgage company, with financial coverage if title defects are later discovered.
Some detective work on your part may be necessary to determine if: (1) you obtained owner’s title insurance when you purchased your property, and (2) if your coverage will continue after the property is conveyed into Trust, depending on the terms of the policy.
If you have an owner’s title insurance policy, the company should be contacted to confirm in writing that coverage will continue upon conveyance. If coverage will not continue under the terms of the policy, an endorsement (or amendment) to the policy should be obtained that will add the Trust to which the property is being conveyed as an additional “insured” on the title policy, thereby continuing the title insurance coverage after the conveyance. Title insurance companies sometimes charge fees of $100-$300 to issue an endorsement to the policy.
Be sure to take the time to determine if you have owner’s title insurance, and if your coverage will continue prior to conveying your property into Trust – it will be well worth the time and effort involved. Ensuring your coverage will not be inadvertently terminated will save you, the Trustee of your Trust, or the Personal Representative of your estate significant aggravation and expense when the property is sold in the future in the event a title defect is discovered.