Insurance And The Land Trust
Here is the scenario. We have put all of our properties into Land Trusts just like Bill Bronchik's course told us.
We also had the insurance moved over to have the trustee as the named insured, and us as the additional insured.
I don't know why Bill Bronchick advised people to do it this way, but I figured it would create some anonymity.
BUT
The problem is that this past year we have had to file a claim against the insurance. The problem occurs that since the Trustee is on the Land Trust (it isn't me) that the check goes to that trustee instead of me (the beneficiary). You guys with me so far?
My Trustee tried to cash the check at the bank and the bank said we had to have a Federal Tax ID number. They wouldn't allow her Social to be the Tax ID.
Now my accountant verified that we didn't need a Tax ID for tax reasons, but the bank needed one. So we has to get one just to cash a check.
In Short, we had to get a TAXID for everytime we need to file an insurance claim.
Does anybody have a better solution??
Quote:
On 2004-01-16 11:32, joel wrote:
Here is the scenario. We have put all of our properties into Land Trusts just like Bill Bronchik's course told us.
We also had the insurance moved over to have the trustee as the named insured, and us as the additional insured.
I don't know why Bill Bronchick advised people to do it this way, but I figured it would create some anonymity.
BUT
The problem is that this past year we have had to file a claim against the insurance. The problem occurs that since the Trustee is on the Land Trust (it isn't me) that the check goes to that trustee instead of me (the beneficiary). You guys with me so far?
My Trustee tried to cash the check at the bank and the bank said we had to have a Federal Tax ID number. They wouldn't allow her Social to be the Tax ID.
Now my accountant verified that we didn't need a Tax ID for tax reasons, but the bank needed one. So we has to get one just to cash a check.
In Short, we had to get a TAXID for everytime we need to file an insurance claim.
Does anybody have a better solution??
It sounds like you have a separate trust own each property. I am also assuming you have a "master" or "blanket policy" to cover all owned properties (if not, that would be a whole other discussion)!
In this scenario, we advise our clients that own multiple properties to either:
1. Create an entity (LLC is the easiest) that will simply pay the premiums and receive any insurance settlements as 1st named insured.
2. If you have an existing “Management Company” already set up, name them as 1st named insured.
Regardless of option 1 or 2, on each individual property, we then name the respective trust that owns it as loss payee and additional insured for that property only. This allows each trust to be covered only on the property it owns and doesn't tie-in liability exposure, one of the things creating the trust is helping to solve.
Hypothetical:
Your "insurance entity" (or existing management company), let's call it "TCI Properties, LLC" is the 1st named insured, in other words, the policy is in it's name. [You can do this because of the insurable interest it (TCI Properties, LLC) has in all of the properties].
One of your properties, 123 Main St. Anytown, OH, is owned by the 123 Main Street Trust. The Trust, not the Trustee, is named on the policy as "Loss Payee" (for the property interest it has) and "Additional Insured" (for the liability exposure it has). Fire occurs at 123 Main Street. Damage to be repaired is $17,000. The insurance company settlement check, less $2500 deductible, is $14,500. The check will be cut to TCI Properties, LLC and 123 Main Street Trust as loss payee. In other words, a two-party check is issued. [This is an over-simplified claim example, as, depending on insurer, a claim of this size may also be paid to an agreed upon contractor(s)].
(I know this is getting lengthy and complex, but stick with me)...
The Trustee is not a party on the check. The Trust language itself should dictate that the insurance proceeds are used correctly. That is where the trustee comes in. Also, for and added benefit, in the event the anonymity is broken, we name "you" and even the Trustee as additional insureds to garner liability protection.
We've never had a problem with such a client finding it necessary in this scenario to get another Tax ID # to settle/cash a claim check. Since the Trust itself (and of course, the 1st named insured) are on the check, the bank should honor it as such (the trustee's signature that is).
That's my long answer...
For my short answer, try taking the Trust document that names the Trustee to the bank and advise them that the Trust does not have a Tax ID # as it is not required (in other words, your bank may be a PITA).
Hope I didn't confuse the bejesus out of you. If I did, PM me, and I'll give you my phone number. It's actually easiest to explain this scenario in a schematic/chart. Not too easy to explain clearly in this venue.
Tim
[ Edited by norrist on Date 01/16/2004 ]
Thanks for the detailed answer. I will look over it more on Monday and will PM you if I need any extra assistance.
Thanks again.
Although you've already got some great advice, it may even be simpler to solve.
Very often a bank's employees don't go by the same book or even know of the book.
This being true, it could well be that your having the Trustee endorse the check to you, then your depositing the check in the night drop at another branch might very well encounter NO problems and see your account credited immediately with that $$$.
Have you ever been in a bank's back room wherein sitteth a clerk,inputting jillions of checks,every hour of every day?
It's truly amazing to me what does get by, like unsigned checks, or signing Mickey Mouse, etc...the poor inputter just can't see all the goofs and can't afford the time to analyze each check that's deposited.
Since a trust is only a passthrough entity for income tax, your SS # is probably all that's needed, but it's not hard to call IRS and get a new EIN if you have to.
I think another good reason to name the Trust and not the Trustee, is to keep the Trustee's name out of the "public eye". Even though the insurance contract is somewhat "private", I would let the Trust do it's job, so to speak.
Though in the big picture you may want to reevaluate how your policy(ies) are written, I'm with John on the simpler short-term solution as well. I'd bet if you went to a different branch of the same bank, or even a different teller, you may not even have a problem cashing it. [ Edited by norrist on Date 01/17/2004 ]
The trustee, I trust with my life. I like the endorsement idea.
But I don't know if the check has to be cashed at the bank that wrote it or if they do endorse it and sign the check over to us can we cash it in our own bank.
It is worth a try on this last claim that we are going to get a check for.
I wouldn't be able to emplement norrisd thing anyway this late in the game.
This past week one of our tenants flooded the apartment.
Joel-You may be able to adjust your current policy and/or sign a "waiver and assignment" form, which basically allows you to re-name the 1st named insured, etc... Wouldn't affect any payment on the current claim, but would hopefully help you avoid problems in the future. Good luck, let me/us know how it turns out. Have a great weekend.
Tim