An Overlooked Aspect of Estate Planning — Property & Casualty Insurance

Michael S. Arlein (senior associate in the Personal Planning Group of Patterson Belknap Webb & Tyler LLP) and Timothy O’Brien (Director of Private Client Services at Cook, Hall & Hyde, Inc.) have recently published their article entitled Will State Farm Be There? Often Overlooked Property And Casualty Insurance Aspects Of Common Estate Planning Transactions, Practical Tax Lawyer, Summer 2007, at 7.

Here is the introduction to their article:

A number of the most common estate planning techniques recommended by practitioners involve the transfer of a client’s personal residence to an entity such as a limited liability company, limited partnership, or trust. Estate planning attorneys recommend such transfers for a number of reasons, including protection from creditors, avoidance of probate, facilitating gifting of fractional interests in a residence, and providing a mechanism for the management of property owned by multiple individuals or families. Transferring residential property to a qualified personal residence trust also remains a popular and effective strategy for gifting.

When implementing these “bread-and-butter” estate planning techniques, practitioners often neglect a crucial aspect of the transaction—restructuring the property and casualty insurance that is in place to reflect the transfer of ownership of the residence to an entity. In the event of a loss, the failure to address this issue could have unintended and potentially devastating consequences. This article focuses on the need to properly structure homeowner insurance policies, which are commonly used to protect residences that are transferred to an entity.