Does your title insurance policy remain in effect if you transfer your real property to your revocable living trust or limited liability company? Depending on the type of policy you have, it may not provide coverage.
In 2006, the American Land Title Association (ALTA) changed the standard owner’s policy such that insureds were specifically authorized to transfer properties to a revocable living trust or limited liability company. ALTA accomplished this by expanding the definitions of “Insured” to include successor revocable living trusts and LLCs.
There is some conflicting opinion as to whether title policies issued prior to 2006 allow for the same. The following case is an example of why, prior to transferring your real property to a revocable living trust or limited liability company, it is important to read the terms of your title policy and contact the issuer if there is any question as to whether coverage will transfer.
The following is a real-life example of potential problems from a case called Kwok v. Transnation Title Insurance Company (170 CA 4th 1562). In that case, Patrick Man Kee Kwok and his wife Maria Oi Yee Kwok formed “Mary Bell, LLC” and purchased real property located on Mary Bell Avenue in Los Angeles in 2004. Mary Bell, LLC was named as the insured under Schedule A of the title policy, which insured both the real property and an easement for access over a neighboring property. The Kwok’s later transferred the real property to their revocable living trust.
After the Kwok’s commenced construction of a single-family residence on the property, their neighbors refused to give them access to the easement for sewer and drainage, asserting that the easement was invalid. They could not resolve the easement dispute with their neighbors and ultimately filed a lawsuit seeking to enforce their rights. They filed a claim under the title policy, which was denied on the basis that the transfer of the property to the revocable living trust was not involuntary (ALTA’s prior standard). The court ultimately concluded the Kowk’s did not have coverage.
The Kwok’s could have saved thousands of dollars in costs and attorneys’ fees if they would have contacted an attorney prior to transferring the property to their revocable living trust. If you purchased the property prior to 2006 or are unsure whether your policy will transfer, then it is possible to purchase an “additional insureds” endorsement which will cover the transfer, at relatively little cost. If you have questions about estate planning, contact an estate planning lawyer in Belgrade, MT, like the ones at Silverman Law Office, PLLC.