Estate planning is full of twists and turns, as there are many moving parts that change over time. And when managing all of these changing, moving parts, one must be sure to mind the details …or else suffer the consequences.
A recent article in AdvisorOne reminds us of the need to take care of the details when constructing your estate plan. The article, titled “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details,” uses the example of trusts and LLCs to illustrate how even the best intended planning can go awry. These common entities are often used by estate planning attorneys to protect client assets from probate and creditors, and they are also used to transfer the assets to loved ones after death.
Unfortunately, unless the assets are properly retitled, the full benefit of the planning may not be realized. Similarly, unless the various insurance carriers are notified that the trust or LLC is now the new asset owner (or additional insured), there may be problems in the event of a future claim. For example, if the family home is transferred into a Qualified Personal Residence Trust (QPRT) but the property casualty policy is not updated to reflect this ownership transfer, coverage may lapse under the terms of the policy.
The key thing to remember is that insurance is underwritten with the listed owner in mind. If you transfer an insured asset to another legal entity (i.e., a new owner), then you just might invalidate the insurance coverage by failing to notify the insurer and/or have a new policy issued in the new owner's name. And trust me - you don't want to find out that your coverage has lapsed when the time comes to file a claim.
The Advisor One article is a good reminder that estate planning is never a “one and done” deal. If you're not 100% sure that your insurance policies are updated and consistent with your estate planning, then this is a great time to review your assets, estate planning and insurance coverage with your estate planning attorney.
For more information, or to discuss your specific estate planning questions, contact us at Peak Legal Group.
Reference: AdvisorOne (February 21, 2013) “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details”