Insurance Coverage of Trust Assets After Grantor’s Death

A decision by the Jackson Circuit Court back in the spring calls attention to the importance of insuring trust property properly after the death of the grantor. In the case of Thompson v Fremont Ins Co, No 337368 (Mich Ct App Apr 10, 2018) (unpublished), the importance of calling insurance providers after an individual’s death is demonstrated.

In Thompson, Floyd Jude and his wife purchased a home in Napoleon, Michigan in 1977. In 2008, the Jude’s placed this home in their trust (Floyd Jude Living Trust). Several months later, Jude purchased a homeowner’s policy on the home from Fremont Insurance. Floyd’s application, though, did not notify Fremont that the house was in his trust, and thus Fremont issued a policy with Floyd Jude as the insured.

With his health declining, several family members moved into the home at issue to assist Floyd. On May 20, 2012, Floyd died. Sometime in June, 2012, Fremont sent renewal information on the home’s insurance policy. Floyd’s stepdaughter, Betty Henderson, paid the policy from Floyd’s bank account, as she had been designated the personal representative of Floyd’s estate. She failed to notify Fremont of Floyd’s death.

Subsequently, the relatives moved out of the home. On July 12, 2012, Arthur Thompson, sister of Betty, fell through the exterior stairs while ensuring a door was locked at the home. In November, Fremont learned of Floyd’s death, and terminated the policy and refunded part of the premium payment. Arthur filed suit against Floyd’s trust, and they settled for $100,000. The personal representatives of the trust then sought reimbursement from Fremont for the settlement. Fremont argued that they were not obligated to pay since the trust was not an insured under the policy (recall the policy only named Floyd as the insured) and that the home was not an “insured location” under the policy.

In the trial court, the court granted summary judgement in favor of the trust. Fremont appealed, and court of appeals found in favor of Fremont. The court held that Fremont was under no obligation to reimburse the trust for the settlement paid to Arthur since the trust was not a named insured under the policy, only Floyd (now deceased) was listed. Furthermore, since Floyd was deceased when the policy was renewed by Betty, the policy is invalid.

Thus, under Thomson, the personal representatives (and successor trustees) need to contact the insurance companies of the deceased assets. Thus, we always advise our client’s to notify their home’s insurance company when they placed real property into a trust. Had Floyd or Betty notified Fremont that the home was in a trust, Fremont would have issued the policy with the trust as the insured, and then would have reimbursed the trust for the settlement with Arthur. Having proper insurance and the proper named insurances is critical in estate planning to avoid problems such as that which befell Floyd’s estate.

To discuss estate planning, please contact Benjamin Long of Schmidt and Long.