When it comes to estate planning, pets need to be considered, too.
Many well-off pet owners have left millions of dollars to their cats, dogs, and even chickens — perhaps most notoriously Leona Helmsley, who left US $ 12 million when she died in 2007 to her white Maltese dog Trouble.
But because pets are considered property, individuals cannot directly bequeath money to their dog or cat. Instead, they should make some type of arrangement to care for their beloved animals should they become incapacitated or die, according to Annamaria Vitelli, head of PNC Private Bank Hawthorn.
“Pet trusts are often thought of as something wealthy eccentric folks would do,” Vitelli says. “But now it’s becoming mainstream.”
The reason? Close to 70% of households in the US own a pet, she says, so “70% of households need to think about this.”
Also, as of 2016, all 50 states and Washington, DC, have created statutory provisions for pet trusts, Vitelli says.
At Hawthorn, pets often come up in wealth planning as advisors get to know and understand the families they work with and recognize the value they place on their critters. As the bank has worked more with families in Texas, they are also having conversations with ranch owners about what will happen to horses that aren’t part of a working farm, but are pets, Vitelli says.
Penta recently spoke with Vitelli about what pet owners need to consider when ensuring the care of their non-human loved ones.
Selecting a Caregiver
Whatever plan a family creates for their pet’s future, the main consideration is designating a reliable caregiver, Vitelli says.
Many pet owners have trusted family members and friends who already lend a hand in caring for their pets. Those who don’t have that kind of social network should research organizations that care for animals or animal sanctuaries that can provide for a pet with money set aside by the pet owner.
Vitelli recalls a client who had a parrot and was concerned about who would care for her bird when she died because some parrots can live for 100 years. “The parrot went to a bird sanctuary with their stipend and was being cared for at the sanctuary,” Vitelli says.
It’s also important pet owners let the caregiver they designate know their intentions and understand what’s involved. “You may have the perfect person in your mind, but you shouldn’t spring it on them at the reading of the will — start talking to them now,” she says.
Some potential caregivers may simply not want to do it, or they may be precluded from taking in a pet for some reason. Also, because a caregiver’s circumstances can change, no longer allowing them to care for a pet, it’s important to name a successor who can step in, Vitelli says.
Picking a Pet Trust
Once a caregiver is selected, pet owners can simply set up an informal arrangement with them that includes funds bequeathed in their will to cover costs. But there is no way to legally ensure that any funds designated this way are used to care for a pet. That may not be an issue for those who can rely on trustworthy family members or friends. But for those who have doubts, or don’t have the perfect person to rely on, it’s best to create a more formal structure.
“As much as we love our pets, the law doesn’t recognize pets as people. They are a piece of property, so once you give that property away, how it’s treated by the person who takes it on is not anything you can enforce, ”Vitelli says.
Setting up a pet trust can create that assurance. The simplest is a traditional trust, which would be governed by general trust law. In this case, a pet owner needs to name a beneficiary (the caregiver) and needs to fund the trust with enough money to care for the pet. A trust also requires a trustee, most likely another individual who can make sure any funds distributed from the trust are spent according to a pet owner’s wishes, and that the pet is healthy and safe.
“As long as the trust complies with the law of the state in which it is created, and state law enforces conditional distributions from a trust, the care of your pet can be enforced in court,” according to a note to client from PNC Private Bank.
State Law Matters
Another option is a statutory trust, which would be governed by the law of each specific state. As with a traditional vehicle, a statutory trust is enforceable, although it must comply with state law. Because these laws can be wildly different state-to-state, it’s important to work with an attorney who knows the statute and can draft a trust.
Pennsylvania, for instance, requires a trust to end when the last pet covered by the contract dies, while other states may limit the trust’s length to at most 21 years. While that accounts for the life of most pets, many animals can live longer.
PNC advises clients to put a reasonable amount of money in a trust to cover a pet’s needs throughout its life, and to make a plan for unused funds to be returned to their estate. But how much is reasonable? That can be difficult for some families to decide, particularly when they are childless and pets stand in for two-legged family members. “It has more to do sometimes with the endearment of that pet to that family member,” Vitelli says.
Also, some states limit how much money a pet can receive, and, as is the case in Florida, penalize “overfunding.” In the year after Helmsley died, for instance, a Manhattan surrogate court judge reduced her dog Trouble’s inheritance from US $ 12 million to US $ 2 million, awarded US $ 6 million to two grandchildren who had been disinherited, and had the remainder go to Helmsley’s charitable fund .
“You just want to make sure you’re not running afoul of a judge’s sensibilities and state rules,” Vitelli says.