Dogs, cats, parrots, and other pet animals play extremely significant roles in the lives of many individuals. Research indicates that pet ownership positively impacts the owner’s life by lowering blood pressure, reducing stress and depression, lowering the risk of heart disease, shortening the recovery time after a hospitalization, and improving concentration and mental attitude.1
The love owners have for their pets transcends death as documented by studies revealing that between 12% and 27% of pet owners include their pets in their wills. The popular media frequently reports cases that involve pet owners who have a strong desire to care for their beloved companions.2
Our Law Tips faculty participant, Professor Gerry Beyer, is here to share his professional insights into estate planning for pets. During his CLE instruction at the Midwest Estate, Tax and Business Planning Institute, he raises questions that often spring into a client’s mind when they begin to make provisions in their will for their pets’ care. Here’s a sample of Prof. Beyer’s “Client Friendly” Frequently Asked Questions:
What is a “pet trust”?
A pet trust is a legal technique you may use to be sure your pet receives proper care after you die or in the event of your disability.
How does a pet trust work?
You (the “settlor”) give your pet and enough money or other property to a trusted person or bank (the “trustee”) with the duty to make arrangements for the proper care of your pet according to your instructions. The trustee will deliver the pet to your designated caregiver (the “beneficiary”) and then use the property you transferred to the trust to pay for your pet’s expenses.
What are the main types of pet trusts?
There are two main types of pet trusts.
The first type, called a “traditional pet trust,” is effective in all states. You tell the trustee to help the person who is providing care to your pet after you die (the beneficiary) by paying for the pet’s expenses according to your directions as long as the beneficiary takes proper care of your pet. Many pet owners will prefer the traditional pet trust because it provides the pet owner with the ability to have tremendous control over the pet’s care.
The second type of pet trust, called a “statutory pet trust,” is authorized in almost 40 states. A statutory pet trust is a basic plan and does not require the pet owner to make as many decisions regarding the terms of the trust. The state law “fills in the gaps” and thus a simple provision in a will such as, “I leave $1,000 in trust for the care of my dog, Rover” may be effective.
How much property do I need to fund my pet trust?
You need to consider many factors in deciding how much money or other property to transfer to your pet trust. These factors include the type of animal, the animal’s life expectancy (especially important in case of long-lived animals), the standard of living you wish to provide for the animal, the need for potentially expensive medical treatment, and whether the trustee is to be paid for his or her services. Adequate funds should also be included to provide the animal with proper care, be it an animal-sitter or a professional boarding business, when the caretaker is on vacation, out-of-town on business, receiving care in a hospital, or is otherwise temporarily unable personally to provide for the animal.
The size of your estate must also be considered. If your estate is relatively large, you could transfer sufficient property so the trustee could make payments primarily from the income and use the principal only for emergencies. On the other hand, if your estate is small, you may wish to transfer a lesser amount and anticipate that the trustee will supplement trust income with principal invasions as necessary.
You should avoid transferring an unreasonably large amount of money or other property to your pet trust because such a gift is likely to encourage your heirs and beneficiaries to contest the trust. If the amount of property left to the trust is unreasonably large, the court may reduce the amount to what it considers to be a reasonable amount.
How do I fund my pet trust?
Direct transfers: If you create your trust while you are alive, you need to transfer money or other property to the trustee. You need to be certain to document the transfer and follow the appropriate steps based on the type of property. For example, If you create the trust in your will, you should include a provision in the property distribution section of your will that transfers both your pet and the assets to care for your pet to the trust. For example, “I leave [description of pet] and [amount of money and/or description of property] to the trustee, in trust, under the tenus of the [name of pet trust] created under Article [number] of this will.”
Pour over will provision: If you create your pet trust while you are alive, you may add property (a “pour over”) from your estate to the trust.
Life insurance: You may fund both inter vivos and testamentary pet trusts by naming the trustee of the trust, in trust, as the beneficiary of a life insurance policy. This policy may be one you take out just to fund your pet trust or you may have a certain portion of an existing policy payable to your pet trust. This technique is particularly useful if you do not have or anticipate having sufficient property to transfer for your pet’s care.
Pay on death accounts, annuities, retirement plans, and other contracts: You may have money in the bank, an annuity, a retirement plan, or other contractual arrangement that permits you to name a person to receive the property after you die. You may use these assets to fund both inter vivos and testamentary trusts by naming the
trustee of your pet trust as the recipient of a designated portion or amount of these assets. There may be income tax consequences to your estate when retirement plans are used in this way.
Who should be the trustee of my pet trust?
The trustee needs to be an individual or corporation that you trust to manage your property prudently and make sure the beneficiary is doing a good job taking care of your pet. A family member or friend may be willing to take on these responsibilities at little or no cost. However, it may be a better choice to select a professional trustee or corporation that has experience in managing trusts even though a trustee fee will need to be paid.
In closing, Professor Beyer sums up thusly:
Estate planning provides a method to provide for those whom we want to comfort after we die and to those who have comforted us. It is not surprising that a pet owner often wants to assure that his or her trusted companion is well-cared for after the owner’s death. By using a properly constructed traditional trust or a statutory pet trust, you may carry out your client’s intent to protect his or her non-human family members.
- See A Dog’s Life (or Cat ‘s) Could Benefit Your Own, SAN ANTONIO EXPRESS-NEWS, May 18, 1998, at lB (explaining how some insurance companies lower life insurance rates for older owners of pets).
- See Anne R. Carey & Marcy E. Mullins, USA Snapshots- Man’s Best Friend?, USA TODAY, Dec. 2, 1999, at lB (12%); Elys A. McLean, USA Snapshots – Fat Cats-and Dogs, USA TODAY, June 28, 1993, at lD (27%); Vital Statistics, HEALTH, Oct. 1998, at 16 (18%).
Many thanks to Professor Beyer for sharing a glimpse inside pet trusts. You are invited to attend the 9.5-hour 42nd Annual Midwest Estate Tax & Business PlanningTM Institute by video replay in various locales around Indiana the next 90 days. Click here to choose your convenient date and place.
About our Law Tips faculty participant:
Professor Gerry W. Beyer joined the faculty of the Texas Tech University School of Law in June 2005 as the first holder of the Governor Preston E. Smith Regents Professorship. Previously, Prof. Beyer taught at St. Mary’s University and has served as a visiting professor at several other law schools including Boston College, The Ohio State University, Southern Methodist University, the University of New Mexico, Santa Clara University, and La Trobe University (Australia). Prof. Beyer was the recipient of the 2012-2013 Outstanding Researcher Award from the Texas Tech School of Law. As a state and nationally recognized expert in estate planning, Prof. Beyer is a highly sought after lecturer.
About our Law Tips blogger:
Nancy Hurley has long-standing connections with Indiana lawyers. She was formerly a member of the ISBA and IBF staffs for over 30 years. Nancy’s latest lifestyle venture is with ICLEF. We are utilizing her exceptional writing and interviewing skills while exploring how her Indiana-lawyer background fits with ICLEF’s needs. When she isn’t ferreting out new topics for Law Tips, her work can be found in our Speaker Spotlight blogs, postings on the ICLEF Facebook and Twitter pages, and other places her legal experience lends itself.
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