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How Pet Trusts Provide Life Insurance Money for Pet Care

Insurance, Life Insurance
How to Provide for a Pet After You're Gone

Pets are often like members of the family, so you might worry about what will happen if you’re no longer around to take care of them.

Setting up a pet trust to benefit your pet can put your mind at ease, and you don’t have to be a billionaire to do it.

Why a pet trust?

A trust, a legal entity that holds property and money for beneficiaries, is a good option to care for a pet because you can’t leave property, cash or life insurance money directly to an animal.

Pet trusts got a dubious reputation after hotel heiress Leona Helmsley left $12 million in trust for her white Maltese, Trouble, and nothing to two of her four grandchildren. A year after Helmsley died in 2007, a judge reduced the dog’s trust to $2 million. Trouble lived in the lap of luxury until she died at age 12 in 2011.

Trouble’s original trust may have been excessive, but pet trusts make sense in some situations, and life insurance can be a good way to fund them, says Gerry Beyer, co-author with Barry Seltzer of “Fat Cats & Lucky Dogs: How to Leave (Some of) Your Estate to Your Pet.”

“If you care about your pet, you need to make proper arrangements and plan,” says Beyer, a professor at the Texas Tech University School of Law. Too often, he adds, “family members do not want to be bothered, and the animal ends up at the pound.”

Your pet may be part of the family, but the law considers animals property. That’s why you can’t leave money directly to your pet. “You might as well leave money to your desk or your car,” Beyer says.

Three primary options

There are three main ways of planning for pet care after your death:

  • Traditional trust: You can set up a traditional trust for a pet. With a traditional trust, you provide instructions for the pet’s care, appoint a caregiver and name a trustee to manage the money. If you fund the trust with life insurance, you name the trustee as the beneficiary and include the name of the trust on the document. Your life insurance company will tell you how to word the designation. You can also designate a portion of a life insurance policy to go to the pet trust and the remainder to go to other beneficiaries, such as your children.
  • Statutory pet trusts: With a statutory pet trust, you put a simple direction in your will, such as “I leave $5,000 in trust for the care of Rover,” Beyer says. The probate court will fill in the gaps, appointing people to provide care and oversee the money. Minnesota is the only state that does not recognize statutory pet trusts, but Beyer expects that to change. The downside of a statutory pet trust is it doesn’t let you leave detailed instructions for the pet’s care.
  • Pet Protection Agreement: If you don’t need to leave substantial money for the care of a pet, another option is a do-it-yourself Pet Protection Agreement available through LegalZoom. The agreement, created by animal law and estate attorney Rachel Hirschfeld, lets you spell out instructions for care of your pets and is signed by both you and the pet guardian. It is legally binding.

A traditional trust gives you the most latitude in financially planning for the pet’s care, Beyer says. You can spell out all the details — from what your pet should be fed to how often he should see the vet to where he should sleep.

If you’re using life insurance to provide the pet-care money, you’ll need to decide what type of policy makes the most sense considering your age and the pet’s age:

  • Term life insurance will cover you for a certain number of years, such as 10, 20 or 30. If you’re likely to outlive your pet and you want coverage in case you die prematurely, term life will work.
  • If your pet is likely to outlive you, a permanent life insurance policy, which covers your entire life span, is the best choice. (It is also more expensive than term life insurance.)

When to consider a pet trust

Pet trusts are especially important if you have a pet with a long life span, says attorney Kim Bressant-Kibwe, the trusts, estates and planned-giving counsel for the American Society for the Prevention of Cruelty to Animals.

African grey parrots, for instance, generally live 50 to 70 years. Horses usually live about 25 years, Bressant-Kibwe says, “but I know of one who lived past 50.” Some tortoises have been known to live more than 150 years.

Pet trusts also are advisable for people with exotic pets, which would be hard to place in new homes, or for people with multiple pets.

Mistakes to avoid

The pet trust that Helmsley set up for little Trouble was problematic from the start. A judge reduced it at the request of the estate’s trustees because it was so obviously excessive. It also ran into problems because the trust document directed Helmsley’s brother or her grandson to care for the dog. But neither wanted to, so the trustees had to find someone else to provide care.

To avoid such problems, follow these tips from Bressant-Kibwe when setting up a pet trust.

  • Talk to the people you want to care for your pets to make sure they’re willing to do it.
  • Choose a trustee who is different from the pet caregiver. This provides a system of checks and balances.
  • Name successors for the trustee and caregiver in case either is unable to perform the role.
  • Get referrals for estate attorneys who have handled pet trusts before. Ask your local animal welfare organization for names.
  • Be reasonable with the amount you set aside for your pet, so the trust doesn’t become a target for disgruntled relatives.
  • Designate where the remainder of the money in the trust will go when the pet dies. An animal welfare organization is a good option. Don’t designate the remaining money for the caregiver, Bressant-Kibwe advises. That would give the caregiver reason to want the animal to die sooner and perhaps skimp on care. You can designate money in the trust to compensate the caregiver while the animal is alive.
  • Provide detailed instructions. “Don’t assume your caregiver and trustee will know how your pet should be taken care of.”

Thinking about what would happen to your pets if something happened to you is part of being a responsible pet parent, Bressant-Kibwe says.

“We don’t want pets to end up at the doors of shelters,” she says.

To find the right coverage amount and compare prices, use NerdWallet’s life insurance comparison tool.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: bmarquand@nerdwallet.com. Twitter: @barbaramarquand.

This article was written by NerdWallet and was originally published by Forbes.


Image via iStock.