People today consider their pets to be family. Americans are expected to spend nearly $72 billion on their four-legged "children" this year.
But the legal reality has not caught up with this shift in perception. Under the law, pets are considered to be property. That means if you are incapacitated or pass away and you haven't made arrangements for their care, your pets could end up in shelters - or out on the street.
To ensure that your pets are cared for in the way that you desire, you must include them in your estate planning.
What to Include in an Estate Plan for Your Pets
Pets are more than disposable property and provide us with unconditional love and affection, so it's only natural for us to ensure they're cared for after we're gone. Pet planning is important no matter what financial situation you are in.
Designate a Pet Guardian
The first step in planning is to choose someone trustworthy to be their guardian, said Paul DeLauro, manager of wealth planning at City National Bank. You can designate a guardian in your will or create a more formal pet protection agreement as part of a trust or as a standalone document.
Just make sure you discuss your plans with the potential guardian to avoid unpleasant surprises.
"Have a direct conversation with that person to ensure the guardian is willing and able to care for the pet," DeLauro said. "Set aside assets for the care of the pet that the guardian can access and see a lawyer to draft a document similar to a durable power of attorney designating that person as the pet's guardian."
If you don't have someone who is willing to care for your pets, or are thinking about designating a successor guardian, speak with the planned giving department at a no-kill shelter or veterinary perpetual care program to arrange for their care.
Sean Farnan, development director at the Society for the Prevention of Cruelty to Animals of Northern Nevada in Reno, works with many donors in their estate planning.
"We always let them know that their pets will be adopted out to good homes, which we ensure through our rigorous screening process," he said. "Because we are a no-kill shelter, no pets will ever be euthanized due to space issues."
Allocate Funds for Pet Care
Part of the estate planning process for pets involves setting aside money for guardians to care for pets. One way to do that is to set up a pet trust.
A pet trust may be funded in advance of the owner's disability or death. Or it may be funded after death by "pouring over" money from the owner's pre-existing trust estate.
"Funding the trust in this fashion keeps the operation of the trust private and outside of probate court supervision while also not requiring funds be transferred to the trust until the pet owner has died," said Steven Weisman, a professor at Bentley University in Boston and an estate planning attorney.
Another option is to purchase a term life insurance policy.
"Funding a pet trust through a term life insurance policy insures that the pet's caregiver receives money to care for the pet quickly and these funds aren't subject to probate," said DeLauro. If you want to keep things simple, name your pet guardian as the beneficiary of this policy.
"If your plan involves leaving money to a charity that cares for pets, you may get a charitable estate tax deduction as well," said DeLauro.
Pets are specially loved animals that need care. If yours is part of the family, it's up to you to take the first steps.
This report is for general information and education only and was compiled from data and sources believed to be reliable. It is provided as a courtesy to the clients and friends of City National Bank. The Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the report with no obligation to update or notify of inaccuracy or change. This report may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.
City National Bank, its managed affiliates and its subsidiaries, as a matter of policy, do not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisers on the tax, accounting and legal implications of any proposed strategies based on your particular circumstances.