Practice Management
Estate Planning for Pets: Six Rules
A pet trust can ensure beloved animals are cared for after their owners are gone.
The majority of homes in the United States have pets, with many owners treating their pets as family members. As with any loved one, it's important to consider how pets will be taken care of in the event that tragedy strikes.
Because pets are considered personal property under state law, they need special consideration in an estate plan to ensure they receive proper care when their owners can no longer care for them. A pet trust can dictate the type of care a pet will receive after its owner is gone and supply funds for that care; it also gives owners peace of mind knowing that their beloved pets will be cared for.
While they are not a staple of every estate plan, pet trusts are growing more prevalent due to both changes in state law, and owners becoming increasingly aware of their availability. Since this is an expanding trend, and one that your clients will likely determine to be extremely important, here are some steps to consider when it comes to helping your clients develop a pet trust.
1. ASK: DOES YOUR CLIENT NEED ONE?
While any client with a pet is a potential candidate, pet trusts are particularly suited for individuals who would not have an ideal person to care for their pets when the clients die or become incapacitated. Generally speaking, these are single individuals, married couples with no children, or clients with no relatives to whom they feel close.
2. IDENTIFY COVERED PETS
Owners may feel that their pet is unique, but to others, all golden retrievers look alike. Your client should leave a specific description of the pet and its features, in order to avoid lookalike or copycat pets. (Because there is money involved, an unscrupulous caretaker might seek to have payments continue past a pet's death.) If possible, have your client list microchip numbers and other identifying information in the trust document.
3. CALCULATE COST OF CARE
The pet trust will need to hold a certain sum of money to pay for the pet's care. To determine the amount, first estimate the annual costs of food, pet insurance, veterinary care, routine medications and supplements, as well as any other recurring costs, and then multiply that by the entire life expectancy of the pet. It is also important to factor in extra medical costs as pets age—as is true for people, medical care costs increase as the pet ages.
Because a pet trust can also provide for multiple pets, make sure that your clients factor the costs of caring for all covered pets into the final budget. Finally, the owner should clearly state in the trust that the care of the pet is the trust's primary purpose, and that all funds should be used to care for the pet.
4. DETERMINE WHO SHOULD BE IN CHARGE
In most cases, your client will need to designate both a trustee and a caretaker. Consider these choices carefully.
The trustee will be in charge of the money, and will have the legal responsibility to ensure that the money is properly used by the caretaker to care for your client's pet. The caretaker is analogous to a custodial parent: The pet will live with the caretaker, who will then provide for the pet's daily needs.
In some states it is possible to make the trustee the legal owner of the pet—a move that gives the trustee more authority to ensure that the pet is cared for, in case there is an issue with the named caretaker. Your client may also want to give the trustee the ability to remove and replace the caretaker, if necessary.
The trustee is entitled to compensation, and it is generally a good idea to provide an annual stipend for the caretaker as well. Outline this compensation clearly in the trust.
5. ESTABLISH A STANDARD OF CARE
It is important for your client to list in detail how the pet should be cared for. Include the name of the preferred veterinarian and the minimum number of vet visits per year, as well as any requirements for boarding, grooming, pet walking services, toys, treats, even doggie daycare.
Yet, it also is important to give the trustee and caretaker the flexibility to implement a new plan in case of changed or unforeseen circumstances in the future. A veterinarian may retire or a caretaker may move, for instance. Flexibility will help your client ensure the best continuity of care.
6. PROVIDE FOR REMAINING FUNDS
There may be remaining funds in the trust when the last covered pet dies. At that point the pet trust will terminate and a remainder beneficiary will receive the leftover funds. But be careful about naming an individual as a remainder beneficiary, especially one who is not an animal lover.
The reason: Many states allow interested parties to reduce the amount of funds held for the pet's care if a court deems the trust to be overfunded. Those interested parties might include the remainder beneficiary. So to stave off challenges, consider naming a charitable organization (preferably an animal welfare, rights or rescue organization) that you think will be more likely to respect the terms of the trust, and won't seek to decrease its funding or accelerate the remainder benefits.
It is also possible to add an in terrorem clause, which says that if a beneficiary of the trust contests any provision, that beneficiary will not be able to receive any property from the trust.
Using these tips as a guideline for developing a client's pet trust will ensure that the pet is protected and well cared for after the owner passes away.
— by Tracy Craig
Estate planning attorney Tracy Craig is a partner at Mirick O'Connell and chairwoman of the firm’s trusts and estates group.
Now available on the iPad
Download our latest Perspectives app, "Practice Management: Navigating the Seas of Change."
RELATED CONTENT
-
Practice Management
Volatility? Bring It OnMay 9, 2018Do stock market swings mean new opportunities for financial planners?Next Page -
Practice Management
The Coming Challenge of the Text-Only ClientApril 11, 2018Financial planners are wary of text-only service options, arguing they would contribute further to the commoditization of advice.Next Page -
Practice Management
How Financial Advisors Can Improve Client RelationshipsMarch 6, 2018Planners have picked up some bad habits over the years. Here’s what do to about it.Next Page
The information provided is for general information purposes only and is not intended to be legal, tax or investment advice. The information contained herein has been provided by sources other than Lord Abbett which are believed to be reliable; however Lord Abbett cannot guarantee the accuracy or completeness of this information.