Big or small, complex or simple, every estate has one thing in common — you can’t take it with you when you die. Planning for the distribution of your assets in accordance with your wishes ensures smooth passing of your estate to the right people at the right time. But the best of intentions can go awry if your Property & Casualty (P&C) insurance advisor isn’t included in the discussion.
Take for example Mark and Jennifer Williams, who are transferring title of their $4,000,000 California home into an irrevocable trust, naming their daughter as trustee. After transferring ownership of the property to the trust, Mark and Jennifer neglect to inform their P&C advisor of the new entity.
While the family is on vacation, some outdated wiring causes an electrical fire and the home burns to the ground. Normally, this would be a straightforward insurance claim. After the title transfer, however, the Williams’ technically no longer own the home and, since the trust is not listed as an insured on the home policy, the Williams risk having to cover the loss out of pocket.
Now let’s pivot to Kevin and Stacy Adams, recent retirees who have decided to use a portion of their nest egg on a 20 acre plot in Suisun Valley, CA. The land holds over 1,000 fully fruiting olive trees. With high hopes of a revenue generating operation that the kids can one day take over, Kevin and Stacy establish Adams Orchard LLC but fail to notify their P&C insurance advisor of the new entity and nature of the business.
During their first harvest, a worker’s hand slips and is crushed on the stone mill causing permanent damage. The worker sues the Adams’ for lost wages, medical bills, and pain and suffering. With proper consultation from the outset, a P&C advisor would have:
- Worked with the Adam’s to understand the overall intent of the LLC before any coverage assumptions were made.
- Understood that the “hobby” business was actually a revenue generating operation and offered tailored commercial insurance for General Liability and Worker’s Compensation under the LLC.
In most cases, proper reflection of a trust or LLC on your P&C insurance is a simple administrative transaction with no additional cost to the client. But it is critical you engage a P&C insurance specialist who has a deep understanding of entity ownership and asset protection, and can distinguish between personal and business exposure.
Advisors should also be notified with any updates to trusts or LLCs. By doing so, you will ensure the intended goals of your estate plan are maintained for the generation to come.
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