Revocable Trust and Title Insurance
Ask the Real Estate Lawyer: Real Estate Law Q&A
REM #LAW 679
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A reader points out that when putting
a property in a revocable trust to also make sure the title insurance policy
coverage is changed. Sam and Ilyce further explain how title insurance coverage
Q: I came across an article where the reader was advised to put real property
in a revocable trust.
(article continues below useful links)
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.
Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce
R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your
Home Faster and For More Money In Any Market. If you have questions for
them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
or contact them through Ilyce’s website www.thinkglink.com