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Do You Have a Pet Trust?
Pet Trusts

Do You Have a Pet Trust?

Estate planning helps to create a strategy for managing assets while we are living and their distribution when we pass away. That includes determining what happens to our tangible property as well as financial investments, retirement accounts, etc. An estate plan which includes a trust for your pet can also be used to protect the well-being of our beloved companion animals, says The Balance in the article “Estate Planning for Fido: How to Set Up a Pet Trust.”

Pet trusts were once thought of as something only for extremely wealthy or eccentric individuals, but today many ‘regular’ people use pet trusts to ensure that if they die before their pets, their pets will have a secure future.

Every state and the District of Columbia, except for Washington, now has laws governing the creation and use of pet trusts. Knowing how they work and what they can and cannot do will be helpful if you are considering having a pet trust made as part of your estate plan.

When you set up a trust, you are the “grantor.” You have the authority as creator of the trust to direct how you want the assets in the trust to be managed, for yourself and any beneficiaries of the trust. The same principal holds true for pet trusts. You set up the trust and name a trustee. The trustee oversees the money and any other assets placed in the trust for the pet’s benefit. Those funds are to be used to pay for the pet’s care and related expenses. These expenses can include:

  • Regular care by a veterinarian,
  • Emergency veterinarian care,
  • Grooming, and
  • Feeding and boarding costs.

A pet trust can also be used to provide directions for end of life care and treatment for pets, as well as burial or cremation arrangements you may want for your pet.

In most instances, the pet trust, once established, remains in place for the entire life span of the pet. Some states, however, place a time limit on how long the trust can continue. For animals with very long lives, like certain birds or horses, you’ll want to be sure the trust will be created to last for the entire life span of your pet. In several states, the limit is 21 years.

An estate planning attorney who has experience with pet trusts will know the laws of your state, so you’ll be able to create a trust for your pet.

Creating a pet trust is like creating any other type of trust. An estate planning attorney can help with drafting the documents, helping you select a trustee, and if you’re worried about your pet outliving the first trustee, naming any successor trustees.

Here are some things to consider when setting up your pet’s trust:

  • What’s your pet’s current standard of living and care?
  • What kind of care do you expect the pet’s new caregiver to offer?
  • Who do you want to be the pet’s caregiver, and who should be the successor caregivers?
  • How often should the caregiver report on the pet’s status to the trustee?
  • How long you expect the pet to live?
  • How likely your pet is to develop a serious illness?
  • How much money do you think your pet’s caregiver will need to cover all pet-related expenses?
  • What should happen to the money, if any remains in the pet trust, after the pet passes away?

The last item is important if you don’t want any funds to disappear. You might want to have the money split up to your beneficiaries to your will, or you may want to have it donated to charity. The trust for your pet needs to include a contingency plan for these scenarios.

Another point: think about when you want the pet trust to go into effect. You may not expect to become incapacitated, but these things do happen. Your trust can be designed to become effective if you become incapacitated.

Make sure the trust clearly identifies your pet so no one can abuse its terms and access trust funds fraudulently. One way to do this is to have your pet microchipped and record the chip number in the documents. Also include photos of your pet and a physical description.

Be as specific as necessary when creating the document. If there are certain types of foods that you use, list them. If there are regular routines that your pet is comfortable with and that you’d like the caregiver to continue, then detail them. The more information you can provide, the more likely it will be that your pet will continue to live as they did when you were taking care of them.

Finally, make sure that your estate planning attorney, the trustee, and the pet’s designated caregiver all have a copy of your trust, so they are certain to follow your wishes.

Learns how a pet trust works.

Reference: The Balance (March 27, 2019) “Estate Planning for Fido: How to Set Up a Pet Trust”

What Can I Do with a Trust to Help My Kids?
A Trust Can Protect a Child's Inheritance

What Can I Do with a Trust to Help My Kids?

Young people like to keep things simple. Millennials don’t want their parents’ furniture or antiques. They want to be able to move easily without a lot of headache. Millennials are okay with jewelry, art, and cash. Likewise, with estate planning, Millennials want a simple will. This can be a wise choice if they’re just married and under the estate tax threshold. But when they have children of their own, they should consider a trust.

Forbes’s recent article, “Why A Simple Will Won’t Cut It If You Have Young Children,” explains that without a trust, minor children inherit assets outright when they turn 18. And that may be a problem if your kids are apt to blow through their inheritance in a few years, instead of using the money wisely.

But an inheritance could last a lifetime if the beneficiary lives within her means, doesn’t tap into the principal, and works to help support her lifestyle and supplement her income. But this isn’t always the case, and individuals with access to so much cash are often vulnerable to developing addictions.

A trustee can make certain that your children and young adults are cared for long-term. If you’re not alive to guide and direct your children, a trust can set the necessary limitations for their finances. Also, the trustee can help with your children’s financial literacy, so they’ll possess tools if and when they’re given additional responsibility for their inherited assets.

This isn’t just for minor kids who are under 18 years old, but also for young adults. The fact that a child is “legal” in the eyes of the law doesn’t mean she’s responsible enough to invest a million-dollar inheritance. A trust sets up an experienced advisor to manage inherited assets along the way.

One option, when they’re mature enough, is to set up the trust so they will become a co-trustee. This lets them have a say with the trustee and to make decisions about the management of the trust assets. Your trust can also give them access to distributions of principal slowly over time, so they get used to managing large sums of money.

Simple solutions can work for some people, and there are definitely situations in which a simple will is appropriate. But if you have minor children, you don’t want to allow them to let them inherit money at 18.

Ask your estate planning attorney about the options available to set up a trust to work for your family.

Learn how trusts can protect children.

Reference: Forbes (July 12, 2019) “Why A Simple Will Won’t Cut It If You Have Young Children”

How Does a Life Estate Work?
Life Estate Can Give Peace of Mind About the Family Home

How Does a Life Estate Work?

Life estates are used for a number of estate planning purposes. However, the most frequent strategy is to use a life estate where a parent transfers a home to a child and retains a life estate for themselves. In Florida, you can create a “supercharged” life estate called a lady bird deed where you not only retain the right to liv ein the property but also the right to sell it and keep the proceeds.

nj.com’s recent article, “How does a life estate work to transfer a home to a child?” explains that as a result of the transfer, the child becomes the owner of the home but the parent has certain rights and responsibilities.

The most critical right retained with a life estate is the exclusive right to reside in the property. A child cannot force the parent to move out, and likewise, the child doesn’t have any right to live there. The child can live with their parent, but the deed doesn’t give the child the legal right to live there.

With a life estate, the parent must pay the property taxes and all the regular maintenance connected to the property. In addition, the life tenant is responsible for repairs—but not improvements.

This can be hard to determine, but typically the life tenant must maintain the property in the same condition as when the life estate deed was signed. So, if the parent moves out, and the property is rented, the parent has the right to receive all of the rents.

When the parent passes away, the life estate automatically ceases, and the child now has all of the rights associated with the property.

As far as income tax, when the parent dies, the property receives a “step up” in basis to the date of death value. If the property is sold after the parent dies, the capital gain or loss is calculated by deducting the date of death value from the sales price. It’s a very important tax advantage if the parent has owned the home for a long time, and the property has a low basis.

Retaining the life estate can help the child avoid the capital gains tax more effectively than just transferring the property outright to the child.

However, in contrast, if the property is sold while the parent is still alive, part of the proceeds will be allocated to the parent and part will be allocated to the child.

Only the percentage that’s allocated to the parent will be excluded from income under the federal tax laws. The part that’s allocated to the child may be subject to capital gains taxation.

Every family’s situation is different, so it would be wise to speak with an estate planning attorney to explore whether or not a life estate would be the best situation for you and your family.

Learn how a trust often is a better solution than a life estate.

Reference: nj.com (July 12, 2019) “How does a life estate work to transfer a home to a child?”