Standard 15 – Insuring Real Property
All insurable real property held as an irrevocable trust/estate asset is insured. For revocable trusts, all insurable real property assets should be insured unless a signed statement, approved by legal counsel, is obtained from the trustor(s) of a revocable trust indicating that the asset is not to be insured and agreeing to release the trustee from and to indemnify the trustee for all liability as a result thereof. (Insurable real property of revocable trust assets should always be insured if the trustor(s) so desire(s), and it is [1] practical to do so. Insurable real property trust or estate assets include improved or unimproved real property, whether the deed is recorded or not. Coverage should include fire and casualty (liability) where applicable.)
In the event legal counsel determines it is impractical to comply with the above requirements, an alternate procedure may be implemented for revocable trusts if written approval from the organization’s legal counsel states that the alternate procedure adequately fulfills the trustee’s fiduciary responsibility. This legal opinion shall be updated at least every three years or upon change of legal counsel. [PGTS]
Insurance and NAD Working Policy
NAD Working Policy concerning insuring real property can be found in the red cover policy book [2] S 60 RISK MANAGEMENT POLICY (starting on page 649 of the NAD Working Policy). Most of the real estate a Seventh-day Adventist organization will need to insure will be through Adventist Risk Management (ARM). Most Conference treasury departments have a person who handles insurance for the office. The website link for ARM is below.
When you need to insure real property, ARM will need the following information:
Address of the real property
Size of any structures and land
Type of construction
Property Tax Parcel Number
The use of the property (residential, commercial, industrial)
All of the above information may be found on the appraisal or the preliminary title report.
Irrevocable
Fiduciary responsibility requires the trustee or personal representative to ensure that all real property is insured. For irrevocable trusts, this would include when the donor is still living, if the donor makes the trust irrevocable, as well as if they are incompetent or have died. Insurance coverage needs to be reviewed periodically to be sure that the coverage is sufficient.
Revocable
Some states allow for revocable trusts to be written where the donor releases the trustee from certain fiduciary duties. These trusts state that the donor will manage these items during their lifetime. It is still best to have a written agreement signed by the donor documenting what they take responsibility for during their lifetime. Your legal counsel will need to approve these release documents.
If a donor has his her own insurance on real property, then it is recommended that the trustee (organization) be listed as an additional insured on the policy so that the Trustee would have access to any proceeds realized because of a loss. This is usually very easy to do by the donor contacting the insurance company. The legal name of the trustee organization should be used.
Why would a real property be uninsurable?
If the first paragraph of Standard 15 cannot be complied with, then the second paragraph allows for “an alternate procedure” to be approved by legal counsel. Please note that any “alternate procedure” will need to be reviewed and re-approved by legal counsel at least every three years. If there is a change in the attorney representing the organization, then a required review is triggered.
Gifts of Real Estate
Although Standard 15 is specific to fiduciary responsibilities in connection with Trusts and Estates, there is a good chance that the organization will receive gifts of real estate. Insurance for these real properties should be in place before the donation deed is recorded. Contact your organization’s insurance representative before the deed is recorded.
Conclusion
Standard 15 is designed to protect the organization from loss from liability or damage to the property. There have been many Seventh-day Adventist organizations that have been very glad that they had the proper insurance on real estate when an unexpected disaster happened.
One feature that the insurance policy should contain is called “ordinance and law,” which provides that if a building is destroyed, it will be rebuilt to the current building code requirement rather than only replacing what was there at the time of the destruction. The fact is, in most jurisdictions, the structure that was there cannot be built today, and the extra cost of bringing the building up to the current building code requirements could be very costly.
The Seventh-day Adventist Church is a mission-driven organization. When funds have to be taken from the mission to pay for the building of a structure that was destroyed, then the mission suffers. By having the proper insurance coverage, the mission is protected.