Many parents want to help set their children up for success, and while we all do this in different ways, some do this by gifting commercial property to their kids. Others may opt to gift a property to their children to avoid the probate process in the event of their death, or because of recommendations from their tax professional. Whatever the reason, both you and your children clearly want to protect your financial interests, so it’s imperative that you understand how gifting property can impact title insurance. We explain what gifting property to someone else means for the title insurance policy attached to the property’s title.
Does Title Insurance Transfer When Gifting Property?
An owner’s title insurance policy protects the property owner’s interests in the event of a valid or invalid claim on your title. For example, if it is discovered that there are unpaid property taxes associated with a property from a previous owner, or a scammer attempts to steal your identity and sell your property to someone else, all of these potential liabilities and court costs will be covered by your title insurance policy. Even if it turns out that someone else has a valid claim to your title, you will be compensated for any financial or property losses that you suffer because you have this policy in place. We believe an owner’s title insurance policy is a must for anyone who owns commercial property.
Best of all, an owner’s title insurance policy only requires one payment. There’s no annual premium or rate increases every year. You’ll pay once, and that payment will secure an insurance policy that provides you peace of mind for as long as you own the property.
Based on that last sentence, you can probably guess how the answer at the heart of this blog will play out. Although you can gift commercial property to your children, you can’t gift the title insurance policy that protects the title. Since you’ll be transferring the title to someone else, and the policy is tied to the current title holder at the time the policy is secured, the policy will expire once the property is gifted and someone else takes over the title. It’s worth noting that title insurance can continue to provide coverage when a property is willed to someone else, but if it is sold or gifted, the owner’s title insurance policy will expire.
You might assume that since you’ve held the property for a while and have yet to run into any issues that the person you’re gifting the property to doesn’t need to secure a policy, but that’s not really a wise move. Oftentimes title problems are discovered during sales and gift transfers, so the reason that you never ran into an issue is because nobody was really looking into the property. When it’s being gifted and county records and forms are being updated, it’s a very common time for an oversight to be caught. Without protection, the person you thought you were helping find economic stability may find themselves dealing with a financial nightmare. Don’t assume that your children can’t benefit from title insurance just because you never needed to rely on the policy.
If you’re considering gifting property to your children or someone else, meet with the team at Commercial Partners to ensure you understand the full ramifications of your actions and how to ensure everything with the process runs smoothly. We’re here to assist with all of your commercial property and title service needs. For more information, reach out to our team today at (612) 337-2470.