Despite the current economy and fluctuating home prices, it’s a good time to discuss one of the details that often gets overlooked in estate planning – did the transfer of your real property to your living trust cause your title insurance policy to lapse?

Title insurance is a policy that you purchase for a one-time premium during escrow when you first acquire your real property. The policy covers against defects in the chain of title prior to the property passing to you and lasts for as long as you or your heirs have an ownership interest in the property.

Before a title insurance company will issue a policy, an extensive search of property records is made for the particular parcel being purchased. All kinds of records are reviewed, including deeds, trusts, Wills, deeds of trust or mortgages, judgments, liens, easements, pending legal actions, if any, and notary public acknowledgments.

Title insurance differs from other kinds of insurance in that it insures against past events rather than possible future occurrences. If issued, a title insurance policy guarantees that the title to the property is free from hidden liens or defects and passes clearly from the seller to the buyer.

Someone records a forged deed naming a fictitious person who then lists the property for sale. The innocent buyer might be surprised one day to discover that the real owners of the property, who perhaps are living in another state, have sued to reclaim the property. Sometimes an unknown heir shows up claiming an interest in the property which passed through intestacy (without a Will). Sometimes a contractor for a remodel of the home records a mechanic’s lien after you purchase your home, claiming non-payment of services rendered. These are just a few of the problems against which title insurance protects.

Other defects also create a cloud on the title and may prevent you from selling your property as easily as you could if you had clear title. These defects include liens for taxes, mortgages, or judgments; typographical errors in the name of the grantor or grantee; errors in the legal description of the property; and errors in the percentage of ownership (if a partial interest is transferred).

Some title insurers take the position that conveying title to the trustee of a living trust terminates the title policy, even if the grantor and the trustee are the same person.

How do you know if your title policy extends to your trustee? Check the language in the policy. If it says something like: “This policy also insures 1) anyone who inherits your title because of your death, 2) your spouse who receives your title on dissolution of marriage, 3) the trustee or successor trustee of a trust to whom you transfer title after the policy date, or 4) the beneficiaries of your trust upon your death….” Then your trustee is protected.

If your trustee is not currently protected, do not despair! Most title insurance companies allow you, for a minimal fee, to obtain an endorsement to the policy adding the trustee and successor trustee as an insured. You should check to see if your title insurance company will do this, if your policy does not already include your trustee or successor trustee as an insured.

If you are unable to locate your policy, or if you are not certain that you obtained one when you purchased your property, contact the title company that handled it during your escrow. You may find the contact information on the standard HUD-1 form of settlement statement among the mountain of documents you received at the close of escrow. (These closing documents are also a good place to look for the deed of trust, legal description for your property, and exact title of your property if you can’t find your Grant Deed.) Contact your title insurance company for more information.

The post Title Policy Protection for Trustees appeared first on Sharp Estate Planning.